IGT Reports Record Q1 Results

22 Jan 2004

RENO, Nevada – (Press Release) -- International Game Technology (NYSE: IGT) today reported its operating results for the first quarter ended December 31, 2003.

First quarter financial highlights:

* Income from continuing operations increased 38% to $116.7 million or $0.33 per diluted share

* Revenues increased 24% to $608.1 million over prior year quarter

* Operating income of $202.2 million, improved 35% over prior year quarter

* Cash flows provided by operating activities totaled $130.0 million

First quarter segment highlights:

* Worldwide machine sales units of 46,100, up 55% over prior year quarter

* Domestic machine sales units of 22,600, up 17% from last year

* Domestic replacement sales units of 16,400 improved 48% over prior year quarter

* Consolidated product sales gross margins of 50% versus 48% in the prior year quarter

* Domestic product sales gross margins of 53% versus 48% in the prior year quarter

* International machine sales units increased 125% to 23,500

* Installed base of 34,400 recurring revenue games, up 1,900 over prior year quarter

* Proprietary gaming gross margins of 56% versus 53% in the prior year quarter

* Quarterly manufacturing output of 34,600 machines

Revenues grew 24% in the first quarter to a record $608.1 million compared to the prior year quarter. The gaming industry's continued acceptance of IGT's EZ Pay(TM) Ticket-in/Ticket-out (TITO) technology drove domestic replacement sales units to 16,400 during the current quarter versus 11,100 in the prior year quarter. During the quarter we produced a record 34,600 machines in our Reno manufacturing facility and coupled with a more favorable product mix, our consolidated product sales gross margins increased to 50% for the quarter, as compared to 48% in the comparable prior year period. The popularity of IGT's brands, resulting from our market leadership in game design, also contributed to the double-digit revenue growth experienced during the quarter. On the strength of our brands, our installed base of recurring revenue games increased 1,900 units over the prior year quarter and 400 units over the prior sequential quarter. In addition, our proprietary gaming operations gross margins improved during the quarter to 56% versus 53% in the prior year quarter, resulting from a favorable geographic mix and increased placements of wide-area progressive recurring revenue games.

"We are extremely pleased with our record first quarter results," commented TJ Matthews, IGT's Chief Executive Officer. "Our ongoing commitment to be the leading provider of gaming machines, platforms and systems has enabled us not only to grow our top line revenues, but also to increase the efficiency of our earnings and related profitability within our product sales and proprietary gaming business units."

First quarter net income totaled $176.3 million or $0.50 per diluted share versus $91.6 million or $0.26 per diluted share in the prior year quarter. Current quarter net income included $59.7 million, net of tax, or $0.17 per diluted share for discontinued operations related to our online lottery systems business, IGT OnLine Entertainment Systems (OES). During the quarter, we completed the sale of OES to Scientific Games Corporation for cash proceeds of $143.0 million and a receivable for the estimated working capital adjustment, resulting in a net gain of $57.5 million. 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, as discontinued operations and assets held for sale.

Our current quarter operating results include approximately two months of operations from our recent acquisition of Acres Gaming, Incorporated (Acres). Inclusive of the $1.8 million in one-time in-process R&D costs referenced below, Acres results were neutral to our earnings during the quarter and are reflected within our product sales business segment.

In addition, as a result of our 52/53 week fiscal year, fiscal 2004 will contain 53 weeks versus 52 weeks in fiscal 2003. As a result, the current quarter contained 14 weeks compared to 13 weeks in the same quarter last year.

Business Segment Discussion - Product Sales

IGT sold a record 46,100 machines worldwide during the current quarter compared to 29,700 machines in the prior year quarter. Product sales revenue for the quarter totaled a record $330.5 million, an improvement of 37% from $241.3 million in the prior year period. Gross profit on product sales increased 44% for the quarter to a record $166.2 million versus $115.1 million in the prior year quarter. Gross profit margins on product sales were 50% for the current quarter versus 48% in the prior year period. Despite a greater mix of international sales during the quarter, year-over-year margins improved primarily due to increased operating efficiencies resulting from greater volumes at our Reno manufacturing facility and a favorable product mix.

Domestically, IGT sold 22,600 machines in the current quarter compared to 19,300 machines in the prior year quarter. Domestic replacement sales totaled 16,400 machines, an increase of 48% from 11,100 machines in the prior year quarter. The improvement in total domestic unit sales resulted primarily from strong replacement sales across all of our domestic markets, as well as new unit sales into the Canadian casino and video lottery markets.

International machine shipments for the quarter totaled 23,500 compared to 10,400 in the prior year period, due primarily to record quarterly shipments in Japan and the European casino markets. Japan shipments for the quarter totaled 12,700 units on the strength of our Nobunaga pachisuro game, which is on track to become our highest selling game ever in Japan. The increases noted above were offset by fewer shipments in Australia and the United Kingdom.

Our top-selling video slot game themes for the quarter included Cops & Donuts(TM), Money Storm(TM), Kenny Rogers®, Phone Tag(TM), and Uncle Sam(TM). Popular video game themes introduced during the quarter included Hexbreaker(TM), That Girl(TM), Ghost Island(TM) and Wild Taxi(TM), to name a few. The top selling spinning reel slot game themes for the quarter included Triple Double Wild Cherry(TM), Triple Stars(TM) and Triple Double Stars(TM).

Business Segment Discussion - Proprietary Gaming

Revenues from proprietary gaming totaled a record $277.6 million in the current quarter, an increase of 12% from $248.4 million in the first quarter of fiscal 2003. Our first quarter wide-area progressive play levels increased across the majority of our markets and exceeded the prior year quarter levels by approximately 3%. Quarterly gross profit from proprietary gaming increased 17% to $154.8 million compared to $132.3 million in the prior year quarter. Gross profit margins on proprietary gaming totaled 56% for the current quarter versus 53% in the same prior year period. The quarter-over-quarter increases resulted primarily from enhanced yields per game due to strong game introductions, an improved jurisdictional mix, and an increase in our wide-area progressive product mix, offset by unfavorable movements in interest rates.

IGT's installed base of recurring revenue machines, including machines placed in both casino and racino markets, ended the current quarter at a record 34,400, an increase of 1,900 from the same quarter last year and 400 from the immediately preceding quarter. Machines in casino markets ended the quarter at 29,700 machines, an improvement of 1,200 from the same quarter last year and an increase of 400 from the prior sequential quarter. The year-over-year and sequential quarter increases resulted primarily from increased placements across the various Native American markets and in Atlantic City. Machines in racino markets ended the quarter at 4,700 machines, up 700 machines from last year related to additional placements in Rhode Island.

Recent game introductions that continue to receive favorable customer acceptance include such popular themes as The Beverly Hillbillies(TM) and M*A*S*H(TM). Placements of perennial favorites Wheel of Fortune® reel slots and Wheel of Fortune® video slots were also strong during the quarter. Game themes expected to be rolled out next quarter include Dilbert(TM), Rodney's Reel Respect(TM) featuring Rodney Dangerfield, and an extension of our Austin Powers(TM) (Goldmember(TM)) game. In addition, Wheel of Fortune® Special Edition will be introduced late next quarter on our new PC-based gaming machine platform, Advanced Video Platform (AVP).

Operating Expenses and Other Income/Expense

Total operating expenses increased $21.8 million to $118.9 million in the current quarter compared to the same period in fiscal 2003, primarily related to increased selling, general and administrative costs (SG&A), additional investment in research and development (R&D) and an increase in bad debt expenses. The increases in SG&A and R&D primarily resulted from increased headcount resulting from the Acres acquisition, and additional employee-related costs including performance-based incentives and healthcare benefits. The increase in R&D was also attributed to a one-time in-process R&D charge of $1.8 million resulting from the Acres acquisition. The increase in bad debt expense is related to the higher sales volumes in the current quarter.

Other expense, net, increased to $15.6 million for the current quarter compared to $14.0 million in the prior year quarter, primarily due to additional interest expense related to our convertible debentures issued in January 2003.

Cash Flows & Balance Sheet

During the quarter, we generated $130.0 million in cash flows provided by operating activities on income from continuing operations of $116.7 million and on income from discontinued operations of $2.1 million. Working capital increased to $1.2 billion at the end of the current quarter compared to $1.1 billion at the end of fiscal 2003, primarily due to increased accounts receivable and inventory levels associated with increased product sales volumes.

Cash and equivalents totaled $1.4 billion at December 31, 2003 and $1.3 billion at September 30, 2003. Long-term debt, net of current maturities, totaled $1.1 billion at December 31, 2003 and September 30, 2003.

Capital Deployment

As previously announced on December 4, 2003, International Game Technology's Board of Directors declared a quarterly cash dividend of $0.10 per share that was paid on December 30, 2003 to shareholders of record on December 16, 2003.

IGT recently announced that the market price condition for convertibility of its zero coupon convertible debentures was satisfied with respect to the conversion period beginning on January 20, 2004 and ending on April 19, 2004.

IGT also announced that it will be redeeming all $400.0 million in principal amount outstanding of its 7.875% senior notes due May 15, 2004 on February 17, 2004, plus accrued unpaid interest to the redemption date.

No shares were repurchased during the quarter, and our remaining share repurchase authorization under IGT's stock repurchase program totaled 39.9 million shares at December 31, 2003.

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	IGT Reports Record Q1 Results 22 Jan 2004 RENO, Nevada – (Press Release) -- International Game Technology (NYSE: IGT) today reported its operating results for the first quarter ended December 31, 2003. First quarter financial highlights: * Income from continuing operations increased 38% to $116.7 million or $0.33 per diluted share * Revenues increased 24% to $608.1 million over prior year quarter * Operating income of $202.2 million, improved 35% over prior year quarter * Cash flows provided by operating activities totaled $130.0 million First quarter segment highlights: * Worldwide machine sales units of 46,100, up 55% over prior year quarter * Domestic machine sales units of 22,600, up 17% from last year * Domestic replacement sales units of 16,400 improved 48% over prior year quarter * Consolidated product sales gross margins of 50% versus 48% in the prior year quarter * Domestic product sales gross margins of 53% versus 48% in the prior year quarter * International machine sales units increased 125% to 23,500 * Installed base of 34,400 recurring revenue games, up 1,900 over prior year quarter * Proprietary gaming gross margins of 56% versus 53% in the prior year quarter * Quarterly manufacturing output of 34,600 machines Revenues grew 24% in the first quarter to a record $608.1 million compared to the prior year quarter. The gaming industry's continued acceptance of IGT's EZ Pay(TM) Ticket-in/Ticket-out (TITO) technology drove domestic replacement sales units to 16,400 during the current quarter versus 11,100 in the prior year quarter. During the quarter we produced a record 34,600 machines in our Reno manufacturing facility and coupled with a more favorable product mix, our consolidated product sales gross margins increased to 50% for the quarter, as compared to 48% in the comparable prior year period. The popularity of IGT's brands, resulting from our market leadership in game design, also contributed to the double-digit revenue growth experienced during the quarter. On the strength of our brands, our installed base of recurring revenue games increased 1,900 units over the prior year quarter and 400 units over the prior sequential quarter. In addition, our proprietary gaming operations gross margins improved during the quarter to 56% versus 53% in the prior year quarter, resulting from a favorable geographic mix and increased placements of wide-area progressive recurring revenue games. "We are extremely pleased with our record first quarter results," commented TJ Matthews, IGT's Chief Executive Officer. "Our ongoing commitment to be the leading provider of gaming machines, platforms and systems has enabled us not only to grow our top line revenues, but also to increase the efficiency of our earnings and related profitability within our product sales and proprietary gaming business units." First quarter net income totaled $176.3 million or $0.50 per diluted share versus $91.6 million or $0.26 per diluted share in the prior year quarter. Current quarter net income included $59.7 million, net of tax, or $0.17 per diluted share for discontinued operations related to our online lottery systems business, IGT OnLine Entertainment Systems (OES). During the quarter, we completed the sale of OES to Scientific Games Corporation for cash proceeds of $143.0 million and a receivable for the estimated working capital adjustment, resulting in a net gain of $57.5 million. 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, as discontinued operations and assets held for sale. Our current quarter operating results include approximately two months of operations from our recent acquisition of Acres Gaming, Incorporated (Acres). Inclusive of the $1.8 million in one-time in-process R&D costs referenced below, Acres results were neutral to our earnings during the quarter and are reflected within our product sales business segment. In addition, as a result of our 52/53 week fiscal year, fiscal 2004 will contain 53 weeks versus 52 weeks in fiscal 2003. As a result, the current quarter contained 14 weeks compared to 13 weeks in the same quarter last year. Business Segment Discussion - Product Sales IGT sold a record 46,100 machines worldwide during the current quarter compared to 29,700 machines in the prior year quarter. Product sales revenue for the quarter totaled a record $330.5 million, an improvement of 37% from $241.3 million in the prior year period. Gross profit on product sales increased 44% for the quarter to a record $166.2 million versus $115.1 million in the prior year quarter. Gross profit margins on product sales were 50% for the current quarter versus 48% in the prior year period. Despite a greater mix of international sales during the quarter, year-over-year margins improved primarily due to increased operating efficiencies resulting from greater volumes at our Reno manufacturing facility and a favorable product mix. Domestically, IGT sold 22,600 machines in the current quarter compared to 19,300 machines in the prior year quarter. Domestic replacement sales totaled 16,400 machines, an increase of 48% from 11,100 machines in the prior year quarter. The improvement in total domestic unit sales resulted primarily from strong replacement sales across all of our domestic markets, as well as new unit sales into the Canadian casino and video lottery markets. International machine shipments for the quarter totaled 23,500 compared to 10,400 in the prior year period, due primarily to record quarterly shipments in Japan and the European casino markets. Japan shipments for the quarter totaled 12,700 units on the strength of our Nobunaga pachisuro game, which is on track to become our highest selling game ever in Japan. The increases noted above were offset by fewer shipments in Australia and the United Kingdom. Our top-selling video slot game themes for the quarter included Cops & Donuts(TM), Money Storm(TM), Kenny Rogers®, Phone Tag(TM), and Uncle Sam(TM). Popular video game themes introduced during the quarter included Hexbreaker(TM), That Girl(TM), Ghost Island(TM) and Wild Taxi(TM), to name a few. The top selling spinning reel slot game themes for the quarter included Triple Double Wild Cherry(TM), Triple Stars(TM) and Triple Double Stars(TM). Business Segment Discussion - Proprietary Gaming Revenues from proprietary gaming totaled a record $277.6 million in the current quarter, an increase of 12% from $248.4 million in the first quarter of fiscal 2003. Our first quarter wide-area progressive play levels increased across the majority of our markets and exceeded the prior year quarter levels by approximately 3%. Quarterly gross profit from proprietary gaming increased 17% to $154.8 million compared to $132.3 million in the prior year quarter. Gross profit margins on proprietary gaming totaled 56% for the current quarter versus 53% in the same prior year period. The quarter-over-quarter increases resulted primarily from enhanced yields per game due to strong game introductions, an improved jurisdictional mix, and an increase in our wide-area progressive product mix, offset by unfavorable movements in interest rates. IGT's installed base of recurring revenue machines, including machines placed in both casino and racino markets, ended the current quarter at a record 34,400, an increase of 1,900 from the same quarter last year and 400 from the immediately preceding quarter. Machines in casino markets ended the quarter at 29,700 machines, an improvement of 1,200 from the same quarter last year and an increase of 400 from the prior sequential quarter. The year-over-year and sequential quarter increases resulted primarily from increased placements across the various Native American markets and in Atlantic City. Machines in racino markets ended the quarter at 4,700 machines, up 700 machines from last year related to additional placements in Rhode Island. Recent game introductions that continue to receive favorable customer acceptance include such popular themes as The Beverly Hillbillies(TM) and MAS*H(TM). Placements of perennial favorites Wheel of Fortune® reel slots and Wheel of Fortune® video slots were also strong during the quarter. Game themes expected to be rolled out next quarter include Dilbert(TM), Rodney's Reel Respect(TM) featuring Rodney Dangerfield, and an extension of our Austin Powers(TM) (Goldmember(TM)) game. In addition, Wheel of Fortune® Special Edition will be introduced late next quarter on our new PC-based gaming machine platform, Advanced Video Platform (AVP). Operating Expenses and Other Income/Expense Total operating expenses increased $21.8 million to $118.9 million in the current quarter compared to the same period in fiscal 2003, primarily related to increased selling, general and administrative costs (SG&A), additional investment in research and development (R&D) and an increase in bad debt expenses. The increases in SG&A and R&D primarily resulted from increased headcount resulting from the Acres acquisition, and additional employee-related costs including performance-based incentives and healthcare benefits. The increase in R&D was also attributed to a one-time in-process R&D charge of $1.8 million resulting from the Acres acquisition. The increase in bad debt expense is related to the higher sales volumes in the current quarter. Other expense, net, increased to $15.6 million for the current quarter compared to $14.0 million in the prior year quarter, primarily due to additional interest expense related to our convertible debentures issued in January 2003. Cash Flows & Balance Sheet During the quarter, we generated $130.0 million in cash flows provided by operating activities on income from continuing operations of $116.7 million and on income from discontinued operations of $2.1 million. Working capital increased to $1.2 billion at the end of the current quarter compared to $1.1 billion at the end of fiscal 2003, primarily due to increased accounts receivable and inventory levels associated with increased product sales volumes. Cash and equivalents totaled $1.4 billion at December 31, 2003 and $1.3 billion at September 30, 2003. Long-term debt, net of current maturities, totaled $1.1 billion at December 31, 2003 and September 30, 2003. Capital Deployment As previously announced on December 4, 2003, International Game Technology's Board of Directors declared a quarterly cash dividend of $0.10 per share that was paid on December 30, 2003 to shareholders of record on December 16, 2003. IGT recently announced that the market price condition for convertibility of its zero coupon convertible debentures was satisfied with respect to the conversion period beginning on January 20, 2004 and ending on April 19, 2004. IGT also announced that it will be redeeming all $400.0 million in principal amount outstanding of its 7.875% senior notes due May 15, 2004 on February 17, 2004, plus accrued unpaid interest to the redemption date. No shares were repurchased during the quarter, and our remaining share repurchase authorization under IGT's stock repurchase program totaled 39.9 million shares at December 31, 2003.