International Game Technology Reports Fourth Quarter and Fiscal Year 2009 Results
| 06 November 2009 |    |
"Our fiscal 2009 results reflect a challenging operating environment which we believe stabilized during our fiscal third and fourth quarters," said CEO Patti Hart. "While we remain cautious on the timing and extent of the replacement cycle, we have been encouraged by modest upticks in spending by many of our casino operator customers over the past two quarters."
Gaming Operations
Fourth quarter revenues and gross profit from gaming operations totaled $283.2 million and $170.2 million, respectively, compared to $331.0 million and $192.7 million for the same quarter last year. For the year ended September 30, 2009, revenues and gross profit from gaming operations totaled $1.2 billion and $683.8 million, respectively, compared to $1.3 billion and $778.1 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 machines.
For the current quarter and fiscal year, gross margins on gaming operations were 60% and 58% respectively, compared to 58% for both prior year periods. The current quarter benefited from a larger base of fully depreciated units.
As of September 30, 2009, IGT's gaming operations installed base totaled 61,400 units, an increase of 300 units from the immediately preceding quarter and an increase of 900 units over the prior year. Installed base growth in international markets was partially offset by a reduction in domestic placements. As of September 30, 2009, approximately 85% of our installed base was comprised of variable fee games that earn a percentage of machine play levels rather than a fixed daily fee.
Product Sales Quarters Ended Years Ended September 30, September 30, ------------------ --------------- 2009 2008 2009 2008 ---- ---- ---- ---- Revenues (in millions) North America - Machine $67.9 $114.0 $376.9 $432.2 North America - Non-Machine 59.4 69.6 240.6 299.4 International - Machine 66.0 93.0 212.4 362.6 International - Non-Machine 38.1 24.6 105.2 96.5 ---- ---- ----- ---- Total $231.4 $301.2 $935.1 $1,190.7 Gross Margin North America 50% 54% 51% 54% International 53% 53% 48% 54% Total 51% 54% 50% 54% Unit Information North America Units Shipped 6,100 11,000 26,400 37,100 Shipped, Not Recognized (2,000) (2,100) (2,800) (2,100) Recognized, Previously Shipped 100 - 2,300 - --- --- ----- --- Equivalent Units Recognized 4,200 8,900 25,900 35,000 International Units Shipped 9,500 11,200 29,800 37,700 Shipped, Not Recognized (1,700) - (2,200) - Recognized, Previously Shipped 100 - 100 - --- --- --- --- Equivalent Units Recognized 7,900 11,200 27,700 37,700Product sales revenues and gross profit in the fourth quarter declined 23% and 26%, respectively, while units shipped worldwide decreased 30% over the prior year quarter. For the fiscal year ended September 30, 2009, product sales revenues and gross profit declined 21% and 27%, respectively, while units shipped worldwide decreased 25% over the prior year. North America revenues decreased 31% for the quarter and 16% for the fiscal year, largely driven by fewer new openings and replacement sales. International revenues declined 11% for the quarter and 31% for the fiscal year as international markets continue to feel the effects of the economic slowdown, most notably in Continental Europe, Japan and South America, and unfavorable changes in currency exchange rates. Consolidated gross margin on product sales for the quarter was 51% compared to 54% in the prior year quarter, and 50% for the full year compared to 54% last year. Both periods were unfavorably impacted by lower volumes spread across fixed manufacturing costs, as well as higher costs related to systems upgrades and fewer systems sales, which carry higher margins.
Deferred revenue increased approximately $48.8 million during the quarter to $122.0 million as of September 30, 2009, as a result of additional multi-element contracts. As we continue to pursue our sales strategy, we may experience increasing levels of deferred revenues from multi-element contracts including systems software and machines bundled together. Units shipped for the current periods reflect all units shipped to customers and include units for which revenues have been deferred. "Equivalent units recognized" represents units recognized in revenues during the periods under U.S. generally accepted accounting principles and includes units for which revenues were previously deferred. We have included in the table above a reconciliation of units shipped to units recognized in revenue for each period presented.
Operating Expenses and Other Income/Expense
Fourth quarter operating expenses totaled $261.9 million, compared to $204.4 million in the prior year period. Excluding a non-cash charge of $78.0 million associated with our investment in Walker Digital, restructuring charges of $5.2 million and bad debt expense of $9.0 million, operating expense would have been $169.7 million, a 16% decrease from the prior year quarter. For the full year, operating expenses increased to $830.3 million, compared to $759.8 million in fiscal 2008, primarily due to the above mentioned non-cash charges, restructuring charges and higher bad debt provisions.
Other expense, net, in the fourth quarter totaled $34.8 million, a decrease of $12.0 million from the prior year period. The decrease was mostly due to reduced investment write-downs, which included LVGI impairment of $13.3 million in the current quarter and less foreign exchange loss, partially offset by increased borrowing costs on our recent refinancings. Other expense, net, for the full year increased $14.8 million to $83.3 million, driven primarily by additional interest expense, partially offset by reduced investment write-downs.
Cash Flows, Balance Sheet and Capital Deployment
For the fiscal year ended September 30, 2009, IGT generated$547.9 million in cash from operations on net income of $149.0 million compared to $486.5 million on net income of $342.5 million in the prior year. Increases in year-over-year cash from operations were primarily the result of reductions in receivable and inventory balances and additional pre-payments for long-term licensing rights in the prior year.
Working capital decreased to $609.2 million at September 30, 2009 compared to $733.4 million at September 30, 2008. Cash equivalents and short-term investments (inclusive of restricted amounts) totaled $247.4 million at September 30, 2009 versus $374.4 million at September 30, 2008. Debt totaled $2.2 billion at September 30, 2009 compared to $2.3 billion at September 30, 2008. The available capacity on our $1.8 billion line of credit totaled $1.7 billion as of September 30, 2009.
Our 3.25% convertible notes and warrants were excluded from diluted shares outstanding for the periods ended September 30, 2009, because the conversion price and exercise price exceeded the average market price of our common stock. The weighted average stock price during the fourth quarter and the period from issuance to September 30, 2009 was $19.62 and $18.18, respectively.
Earnings Conference Call
As previously announced on October 14, 2009, IGT will host a conference call regarding its Fourth Quarter and Fiscal Year 2009 earnings release on Thursday, November 5, 2009 at 2:00 p.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 13, 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 4:00 p.m. (Pacific Time) on Thursday, November 5, 2009. This replay will run through Friday, November 13, 2009. The access numbers are as follows:
Domestic callers dial 800-293-4240
International callers dial 203-369-3224
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 are encouraged by modest upticks in spending by many of our casino operator customers over the past two quarters -- Statements about the potential effects of the purchased note hedges and sold warrant transactionsActual 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 and 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 recurring revenue games -- Continuing or worsening 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, deploy and manage frequent introductions of innovative products and systems -- Failure to attract, retain and motivate key employees which 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 -- Risks of regulatory approvals for new products and systems -- Risks inherent in developing, deploying, and managing new products and systems -- The uncertainty involved in player operator acceptance of new products and systemsHistorical 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 (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, ---------------- --------------- 2009 2008 2009 2008 ---- ---- ---- ---- (In millions, except per share amounts) Revenues Gaming operations $283.2 $331.0 $1,178.9 $1,337.9 Product sales 231.4 301.2 935.1 1,190.7 ----- ----- ----- ------- Total revenues 514.6 632.2 2,114.0 2,528.6 ----- ----- ------- ------- Costs and operating expenses Cost of gaming operations 113.0 138.3 495.1 559.8 Cost of product sales 112.4 139.5 467.3 549.7 Selling, general and administrative 104.1 124.9 425.1 458.5 Research and development 53.4 59.6 211.8 223.0 Restructuring charges 5.2 - 35.0 1.6 Depreciation and amortization 21.2 19.9 80.4 76.7 Loss on other assets 78.0 - 78.0 - ---- --- ---- --- Total costs and operating expenses 487.3 482.2 1,792.7 1,869.3 ----- ----- ------- ------- Operating income 27.3 150.0 321.3 659.3 ---- ----- ----- ----- Other income (expense), net (34.8) (46.8) (83.3) (68.5) ------ ------ ------ ------ Income (loss) before tax (7.5) 103.2 238.0 590.8 Income tax provisions 13.8 51.1 89.0 248.3 ---- ---- ---- ----- Net income (loss) $(21.3) $52.1 $149.0 $342.5 ====== ===== ====== ====== Basic earnings per share ($0.07) $0.18 $0.51 $1.11 Diluted earnings per share ($0.07) $0.18 $0.51 $1.10 Weighted average shares outstanding Basic 294.5 296.1 293.8 308.0 Diluted (a) 294.5 297.0 294.5 310.4 (a) The current quarter weighted average shares outstanding included no incremental shares because the effect of the loss would be antidilutive. Unaudited Condensed Consolidated Balance Sheets September 30, ---------------------- 2009 2008 ---- ---- (In millions) Assets Current assets Cash and equivalents $146.7 $266.4 Investment securities 21.3 - Restricted cash and investments 79.4 108.0 Jackpot annuity investments 67.2 67.5 Receivables, net 489.1 530.3 Inventories 157.8 218.3 Other assets and deferred costs 272.2 279.6 ----- ----- Total current assets 1,233.7 1,470.1 Property, plant and equipment, net 558.8 590.9 Jackpot annuity investments 396.9 423.4 Notes and contracts receivable, net 249.4 148.2 Goodwill and other intangibles, net 1,410.7 1,407.4 Other assets and deferred costs 538.7 517.4 ----- ----- Total assets $4,388.2 $4,557.4 ======== ======== Liabilities and Stockholders' Equity Current liabilities Current maturities of notes payable $5.3 $16.0 Accounts payable 90.5 105.7 Jackpot liabilities 155.5 189.7 Accrued income taxes 9.4 15.3 Dividends payable 17.8 42.9 Other accrued liabilities 346.0 367.1 ----- ----- Total current liabilities 624.5 736.7 Notes payable, net of current maturities 2,169.5 2,247.1 Non-current jackpot liabilities 432.6 461.0 Other liabilities 194.3 203.6 ----- ----- Total liabilities 3,420.9 3,648.4 Total stockholders' equity 967.3 909.0 ----- ----- Total liabilities and stockholders' equity $4,388.2 $4,557.4 ======== ======== Unaudited Condensed Consolidated Statements of Cash Flows Years Ended September 30, -------------------------- 2009 2008 ---- ---- (In millions) Operations Net income $149.0 $342.5 Depreciation, amortization, and asset charges 276.8 286.0 Other non-cash items 82.2 54.3 Losses and impairments on other assets 93.7 28.6 Changes in operating assets and liabilities: Receivables 8.1 (76.8) Inventories 55.6 (83.0) Other assets and deferred costs 1.0 (48.4) Income taxes (35.4) 8.6 Accounts payable and accrued liabilities 6.3 (3.0) Jackpot liabilities (89.4) (22.3) ------ ------ Cash from operations 547.9 486.5 ----- ----- Investing Capital expenditures (257.4) (298.2) Proceeds from assets sold 13.8 34.1 Investments, net (12.0) 57.4 Jackpot annuity investments, net 54.3 45.7 Changes in restricted cash 29.0 (77.3) Loans receivable, net (100.3) (43.1) Business acquisitions, net of cash acquired (15.8) (84.3) ------ ------ Cash from investing (288.4) (365.7) ------- ------- Financing Debt related proceeds (payments), net (273.5) 754.1 Employee stock plans 13.6 86.0 Share repurchases - (779.7) Dividends paid (121.3) (175.6) ------- ------- Cash from financing (381.2) (115.2) ------- ------- Foreign exchange rates effect on cash 2.0 (0.5) --- ----- Net change in cash and equivalents (119.7) 5.1 Beginning cash and equivalents 266.4 261.3 ----- ----- Ending cash and equivalents $146.7 $266.4 ====== ====== Unaudited Supplemental Data Quarters Ended Years Ended September 30, September 30, Reconciliation of Net Income -------------- ------------- to Adjusted EBITDA 2009 2008 2009 2008 ---------------------------- ---- ---- ---- ---- (In millions) Net income (loss) $(21.3) $52.1 $149.0 $342.5 Income tax provisions 13.8 51.1 89.0 248.3 Depreciation, amortization, and asset charges 64.5 75.6 276.8 286.0 Other (income) expense, net 34.8 46.8 83.3 68.5 Other charges: Share-based compensation (excluding restructuring adjustment) 9.6 10.9 42.4 38.4 Restructuring charges 5.2 - 35.0 1.6 Loss on other assets 78.0 - 78.0 - ---- --- ---- --- Adjusted EBITDA $184.6 $236.5 $753.5 $985.3 ====== ====== ====== ====== Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization, including other income/expense, net, and other charges as noted in the table above ) 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. Years Ended September 30, Reconciliation of Cash from --------------- Operations to Free Cash Flow 2009 2008 ----------------------------- ---- ---- (In millions) Cash from operations $547.9 $486.5 Investment in property, plant and equipment (37.7) (92.5) Investment in gaming operations equipment (180.8) (190.6) Investment in intellectual property (38.9) (15.1) ------ ------ Free Cash Flow before dividends 290.5 188.3 Dividends paid (121.3) (175.6) ------ ------ Free Cash Flow $169.2 $12.7 ====== ===== 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) Quarters Ended Years Ended September 30, September 30, Items Affecting Income statement -------------- ------------- Comparability line impacted 2009 2008 2009 2008 ----------------------------------------------------------------------- (In millions, except per share amounts) favorable (unfavorable) Impact of Cost of gaming interest rate operations changes on jackpot liabilities $(2.2) $(0.6) $(8.2) $(16.2) Salvage value Cost of gaming adjustments operations (1.7) - (1.7) (5.3) Fixed asset Cost of gaming charges operations (technological obsolescence) - - (3.5) (5.1) Inventory Cost of product write-downs sales (technological obsolescence) - (5.0) (2.6) (7.4) Bad debt Sales, General, & provision Administrative (9.0) (3.5) (33.9) (9.0) Foreign Other income currency loss (expense), net (1.2) (4.7) (6.8) (4.4) ----- ----- ----- ----- Subtotal before Income (loss) tax before tax (14.1) (13.8) (56.7) (47.4) Tax effect Income tax provision 5.2 5.4 21.0 18.0 --- --- ---- ---- Subtotal after Net income (loss) tax $(8.9) $(8.4) $(35.7) $(29.4) ----- ----- ------ ------ Other: Restructuring Restructuring charges charges $(5.2) $- $(35.0) $(1.6) Debt Sales, General, & refinancing Administrative advisory fees - - (1.8) - Debt Other income refinancing (expense), net breakage charges - - (4.4) - Gain on Other income repurchases of (expense), net convertible debentures - - 6.5 - Loss on other Loss on other assets assets (78.0) - (78.0) - Investment Other income loss (a) (expense), net (13.6) (28.6) (15.7) (28.6) ------ ------ ------ ------ Subtotal Income (loss) before tax before tax (96.8) (28.6) (128.4) (30.2) Tax effect Income tax (a) provision 31.4 - 42.9 0.6 Tax items Income tax provision (12.6) (0.6) 7.7 (8.9) ------ ----- --- ----- Subtotal Net income after tax (loss) $(78.0) $(29.2) $(77.8) $(38.5) ------ ------ ------ ------ Total before Income (loss) tax before tax $(110.9) $(42.4) $(185.1) $(77.6) Total tax Income tax effect provision 24.0 4.8 71.6 9.7 ---- --- ---- --- Total Net income (loss) $(86.9) $(37.6) $(113.5) $(67.9) after tax ====== ====== ======= ====== Total per diluted share $(0.30) $(0.13) $(0.39) $(0.22) ====== ====== ====== ====== (a) Certain investment gain/loss has no tax effect Non-cash charges previously disclosed, after tax: Walker Loss on other Digital assets intellectual property restructuring $(49.2) LVGI Other income investment (expense), net impairment (12.7) Foreign Income tax deferred tax provision valuation allowance (15.3) ------ $(77.2) ======
Unaudited Supplemental Data (continued)
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