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Press release from PR Newswire

International Game Technology Reports Fourth Quarter and Fiscal Year 2012 Results

Thursday, November 08, 2012

International Game Technology Reports Fourth Quarter and Fiscal Year 2012 Results16:15 EST Thursday, November 08, 2012Initiates FY2013 Adjusted EPS Guidance of $1.20 to $1.30, representing growth of 15% to 25%LAS VEGAS, Nov. 8, 2012 /PRNewswire/ --Fourth Quarter Highlights (compared to last year's fourth quarter)Total revenues increased 17% to $631 million North America machine revenue increased 52% GAAP earnings per share from continuing operations increased 65% to $0.33 Adjusted earnings per share from continuing operations increased 58% to $0.38 North America average machine sales price increased 4% to $14,700 Sold 8,500 North America replacement units, up 67%Fiscal 2012 Highlights (compared to last year)Total revenues increased 10% to $2.15 billion Interactive revenues increased 293% to $144 million Shipped 44,200 total units, an increase of 23% North America average machine sales price increased 2% to $14,500 Returned $546 million to shareholders in the form of dividends and share repurchases Delivered third consecutive year of double-digit growth in adjusted earnings per share from continuing operationsInternational Game Technology (NYSE: IGT) today reported operating results for the fourth quarter and fiscal year ended September 30, 2012. "Our strong fourth quarter financial results serve to highlight a very solid fiscal year 2012 for IGT.  In the quarter, we leveraged our industry-leading content to increase revenues, ship share, margins and prices in our core North American business," said Patti Hart, CEO of IGT. "For the full year, we increased total revenues by 10%, improved adjusted earnings per share by 12%, improved global machine shipments by 23%, and more than tripled our interactive revenues.  We continue to effectively manage the distribution of our products to a diverse set of customers and we are well positioned to continue generating even greater revenues and earnings growth in fiscal year 2013."  Hart continued, "Fiscal 2012 marked our third consecutive year of double-digit growth in earnings per share from continuing operations, which underscores our success in growing our core business, while pursuing other value-enhancing opportunities.  IGT is pleased to have returned nearly $550 million to shareholders in fiscal year 2012, and we remain focused on delivering superior returns for our shareholders going forward."Consolidated Results($ in millions, except per share amounts)Fourth Quarters EndedYears EndedSeptember 30,September 30,20122011% Change20122011% ChangeGAAP MeasuresRevenue$ 631.1$ 539.817%$ 2,150.7$ 1,957.010%Operating income$ 108.3$ 115.8-6%$    421.7$    504.9-16%Income from continuing operations$   90.1$   60.050%$    249.7$    292.3-15%Earnings per share from continuing operations$   0.33$   0.2065%$      0.86$      0.97-11%Net operating cash flows$    446.5$    612.4-27%Non-GAAP MeasuresAdjusted operating income$ 188.6$ 136.438%$    563.8$    525.57%Adjusted income from continuing operations$ 101.9$   73.040%$    301.1$    278.98%Adjusted earnings per share from continuing operations$   0.38$   0.2458%$      1.04$      0.9312%Free cash flow (after dividends)$    167.2$    335.6-50%Adjusted operating income, adjusted income from continuing operations, adjusted earnings per share from continuing operations and free cash flow are non-GAAP financial measures.  Reconciliations between GAAP and non-GAAP measures are provided at the end of this release.Revenues increased 10% to $2.15 billion for fiscal 2012, primarily due to interactive and machine sales growth in North America. Adjusted earnings per share from continuing operations increased 12% to $1.04 for fiscal 2012. For fiscal 2012, North America revenue increased 11% to $1.64 billion and International revenue increased 6% to $507 million. Free cash flow, after dividends, decreased 50% to $167 million due to the timing of cash tax payments and an increase in trade receivables related to the timing of VLT shipments into Canada.Gaming Operations (excluding Interactive)($ in millions, unless otherwise noted)Fourth Quarters EndedYears EndedSeptember 30,September 30,20122011% Change20122011% ChangeRevenue$ 263.8$ 269.6-2%$ 1,040.0$ 1,036.50%Gross profit$ 161.7$ 153.55%$ 634.3$ 632.60%Gross margin61%57%7%61%61%0%Installed base57,10053,9006%57,10053,9006%Average revenue per unit per day (0.00)$ 50.83$ 55.33-8%$ 51.49$ 53.34-3%Revenues were flat at $1.04 billion for the year and down 2% for the fourth quarter, with higher lease operations revenue offset by lower MegaJackpots® revenue. Gross margin increased to 61% from 57% in the fourth quarter, partially due to favorable interest rate changes, which increased gross margin by 150 basis points. Installed base increases were primarily driven by lease operations growth globally. Average revenue per unit per day in the fourth quarter was $50.83, up 1% sequentially and down 8% over the prior year quarter.Product Sales($ in millions, unless otherwise noted)Fourth Quarters EndedYears EndedSeptember 30,September 30,20122011% Change20122011% ChangeRevenue$ 313.4$ 256.822%$ 966.8$ 883.99%Gross profit$ 174.3$ 137.527%$ 522.3$ 487.27%Gross margin56%54%4%54%55%-2%Units recognized ('000)14.511.328%43.637.516%Average machine sales price ('000)$ 15.0$ 15.2-1%$ 15.0$ 14.91%Revenues increased 22% to $313 million in the fourth quarter, primarily due to increased North America machine sales related to increased replacement ship share including Canadian VLT sales. Units recognized increased 28% in the fourth quarter, primarily due to Canadian VLT sales. North America gross margin increased to 58% from 56% in the fourth quarter, primarily due to favorable costs resulting from higher production volume. North America average machine sales price in the fourth quarter increased 4% compared to the prior year quarter and increased 12% sequentially, both primarily due to lower discounts.Interactive($ in millions, unless otherwise noted)Fourth Quarters EndedYears EndedSeptember 30,September 30,20122011% Change20122011% ChangeRevenue$ 53.9$ 13.4302%$ 143.9$ 36.6293%    Social gaming$ 35.8- * $   87.0- *     IGTi$ 18.1$ 13.435%$   56.9$ 36.655%Gross Margin62%51%22%56%51%10%    Social gaming61%- * 61%- *     IGTi65%51%27%49%51%-4%Double Down Average User Statistics*    Daily users ('000)1,415-*1,372-*    Monthly users ('000)5,072-*5,097-*    Bookings per daily user (0.00)$ 0.28-*$   0.26-**as a single application with multiple games, active users equal unique usersSocial gaming revenues in the fourth quarter increased 20% sequentially to $36 million, primarily driven by an increase in both daily active users and bookings per daily active user. Daily active users (DAUs) were 1.4 million in the fourth quarter, an increase of 4% compared to the prior sequential quarter. User engagement ratio (DAU/MAU) was 28% in the fourth quarter, an increase of 7% compared to the prior sequential quarter. Average bookings per DAU increased 8% sequentially to $0.28 in the fourth quarter.Operating Expenses and Other Income/Expense($ in millions)Fourth Quarters EndedYears EndedSeptember 30,September 30,20122011% Change20122011% ChangeOperating ExpensesSelling, general & administrative$ 106.7$ 99.67%$ 410.4$ 353.316%Research & development59.648.523%217.0194.711%Depreciation & amortization21.118.117%76.969.710%Contingent acquisition related costs31.3-*69.1-*Impairment / Restructuring42.515.8169%42.515.8169%Total operating expenses$ 261.2$ 182.044%$ 815.9$ 633.529%Adjusted Operating ExpensesTotal$ 182.7$ 166.210%$ 679.6$ 617.710%Operating expenses, for both the quarter and year, increased primarily due to additional expenses related to Interactive. Adjusted operating expenses were 29% of revenues for the fourth quarter compared to 31% of revenues in the prior year quarter.Cash Flows, Balance Sheet and Capital Deployment ($ in millions)September 30,20122011% ChangeCash and equivalents (including restricted amounts)$ 288.2$ 552.0-48%Working capital$ 633.1$ 875.2-28%Contractual debt obligations$ 1,790.0$ 1,650.08%Cash and working capital decreased 48% and 28%, respectively, mainly as a result of cash deployed in connection with share repurchases and the acquisition of Double Down. During the fiscal year, the company received 28 million shares related to the previously announced accelerated stock buyback (ASB).  The total number of shares ultimately repurchased under the ASB is based on the daily volume-weighted average share price of IGT's common stock during the repurchase period and will be determined in the first quarter of fiscal year 2013. Upon completion of the ASB, the company expects the volume-weighted average price of all the shares delivered to the company to be close to the closing price on the day the company announced the program, assuming the share price stays within recent ranges. Also during the fiscal year, the company repurchased 5 million shares of its common stock in the open market under its previous authorization at an average price of $15.18 per share for a total cost of $75 million. During the fiscal year, the company returned $546 million in the form of dividends and share repurchases to its shareholders. Contractual debt obligations were decreased by $140 million during the fourth quarter.OtherThe fourth quarter was impacted by impairment and restructuring charges totaling $28 million, including $15 million related to the impairment of Walker Digital Gaming patents, and $13 million for additional impairment on the company's Alabama notes receivable.  The fourth quarter was also impacted by a $15 million reorganization charge related to IGTi operations involving the closure of Entraction services and facilities.  Additionally, net earnings benefited from the realization of $45 million in tax benefits from deductions resulting from the Entraction closures.References to per share amounts in this release are based on diluted shares of common stock, unless otherwise specified.  Reconciliations of all GAAP to Non-GAAP Adjusted measures are provided at the end of this release.OutlookBased on current expectations, the company is offering its initial fiscal year 2013 guidance for adjusted earnings from continuing operations of $1.20 to $1.30 per share.  GAAP earnings per share from continuing operations for fiscal year 2013 will include acquisition-related expenses, primarily related to Double Down, the amount of which are not determinable at this time.  The company may also recognize charges for impairment, other acquisition-related expenses, resolution of certain tax items, and/or other items that are not currently determinable, but may be significant. For this reason, the Company is unable to provide full-year GAAP earnings per share from continuing operations estimates at this time.Earnings Conference CallAs previously announced on Oct. 25, 2012, IGT will host a conference call to discuss its Fourth Quarter and Fiscal Year 2012 earnings results on Thursday, Nov. 8, 2012, at 2:00 p.m. PST. The access numbers are as follows:Domestic callers dial +1 888-829-8676, passcode IGT International callers dial +1 773-756-4709, passcode IGT The conference call will also be broadcast live over the Internet. A link to the webcast is available at the IGT website: http://www.IGT.com/InvestorRelations.  The call will be archived until Thursday, Nov. 22, 2012 at http://www.IGT.com/InvestorRelations, for those interested parties that are unable to participate during the live webcast. A taped replay of the conference call will be available beginning at approximately 4:00 p.m. PST on Thursday, Nov. 8, 2012. This replay will run through Thursday, Nov. 22, 2012.  The access numbers are as follows:Domestic callers dial +1 800-677-4611International callers dial +1 402-998-1678Q4 FY 2012 Excel fileQ4 FY 2012 PDF of this press releaseSafe Harbor Statement under the Private Securities Litigation Reform Act of 1995This press release contains forward-looking statements that involve risks and uncertainties.  These statements include our expected future financial and operational performance (including our guidance for fiscal year 2013) and our strategic and operational plans.  Actual results may differ materially from the results predicted, and reported results should not be considered an indication of future performance.  The potential risks and uncertainties that could cause actual results to differ from the results predicted include, among others, general economic conditions and changes in economic conditions affecting the gaming industry; difficulties or delays in obtaining or maintaining necessary licenses or approvals; slow growth in the number of new gaming jurisdictions or new casinos or the rate of replacement of existing gaming machines; changes in operator or player preferences for our products; our ability to compete in the gaming industry with new or existing competitors; changes in laws or regulations affecting our business; our ability to develop and introduce new products and their acceptance by our customers; risks related to our international operations; our ability to protect our intellectual property; adverse results of litigation, including intellectual property infringement claims; risks related to business combinations, investments in intellectual property and the integration of acquisitions and the additional risks and uncertainties included under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for fiscal 2011 filed with the SEC on November 30, 2011 and our Quarterly Report on Form 10-Q for our fiscal quarter ended June 30, 2012 filed with the SEC on August 8, 2012, and available on the SEC website at www.sec.gov and on the investor relations section of our website at www.IGT.com.  Additional information will also be set forth in our Annual Report on Form 10-K for our 2012 year, which we expect to file with the SEC in the fourth quarter of calendar 2012.  All information provided in this release is as of November 8, 2012, and IGT undertakes no duty to update this information.About IGTInternational Game Technology (NYSE: IGT) is a global leader in the design, development and manufacture of gaming machines and systems products, as well as online and mobile gaming solutions for regulated markets. More information about IGT is available at www.IGT.com or follow IGT on Twitter at @IGTNews or Facebook at www.facebook.com/IGT.CONSOLIDATED STATEMENTS OF INCOME (Unaudited and Condensed)  Periods Ended September 30,QuartersYears2012201120122011(In millions, except per share amounts)Revenues$ 631.1$ 539.8$ 2,150.7$ 1,957.0Costs and operating expensesCost of revenues261.6242.0913.1818.6Selling, general and administrative106.799.6410.4353.3Research and development59.648.5217.0194.7Depreciation and amortization21.118.176.969.7Contingent acquisition related costs31.3-69.1-Impairment and restructuring42.515.842.515.8Total costs and operating expenses522.8424.01,729.01,452.1Operating income108.3115.8421.7504.9Other income (expense)Interest income11.411.245.351.2Interest expense(31.3)(29.3)(122.2)(130.8)Other  4.31.2(2.0)2.6Total other income (expense)(15.6)(16.9)(78.9)(77.0)Income from continuing operations before tax 92.798.9342.8427.9Income tax provision 2.638.993.1135.6Income from continuing operations90.160.0249.7292.3Loss from discontinued operations, net of tax(2.0)(6.6)(3.8)(8.7)Net income$   88.1$   53.4$    245.9$    283.6Basic earnings (loss) per shareContinuing operations$   0.34$   0.20$       0.86$       0.98Discontinued operations(0.01)(0.02)(0.01)(0.03)Net income$   0.33$   0.18$       0.85$       0.95Diluted earnings (loss) per shareContinuing operations$   0.33$   0.20$       0.86$       0.97Discontinued operations-(0.02)(0.01)(0.03)Net income$   0.33$   0.18$       0.85$       0.94Weighted average shares outstandingBasic268.5297.7288.8298.2Diluted 270.0299.2290.4299.8 CONSOLIDATED BALANCE SHEET (Unaudited and Condensed)   September 30, 20122011(In millions)AssetsCurrent assetsCash and equivalents$    206.3$    460.0Restricted cash and investments81.992.0Jackpot annuity investments 60.263.2Receivables, net564.8487.2Inventories92.973.0Other assets and deferred costs257.2234.5  Total current assets1,263.31,409.9Property, plant and equipment, net555.7552.1Jackpot annuity investments 295.7324.6Contracts and notes receivable, net139.3126.4Goodwill and other intangibles, net1,663.11,401.8Other assets and deferred costs368.0339.6Total Assets$ 4,285.1$ 4,154.4Liabilities and Shareholders' EquityCurrent liabilitiesAccounts payable$       87.5$    103.0Jackpot liabilities, current portion152.4143.0Dividends payable16.017.8Other accrued liabilities  374.4270.9  Total current liabilities630.3534.7Long-term debt1,846.41,646.3Jackpot liabilities328.6365.4Other liabilities282.0163.2Total Liabilities3,087.32,709.6Total Equity1,197.81,444.8Total Liabilities and Shareholders' Equity$ 4,285.1$ 4,154.4  CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited and Condensed)Years EndedSeptember 30,20122011(In millions)OperatingNet income$ 245.9$ 283.6Depreciation and amortization240.3226.2Contingent earn-out consideration27.5-Other non-cash items98.1108.4Changes in operating assets and liabilities, excluding acquisitions:Receivables(101.1)(39.5)Inventories(11.7)9.6Accounts payable and accrued liabilities53.8(11.9)Jackpot liabilities(47.5)(84.6)Income taxes, net of employee stock plans(40.8)98.4Other assets and deferred costs(18.0)22.2Net operating cash flows446.5612.4InvestingCapital expenditures(208.7)(205.1)Jackpot annuity investments, net51.860.7Changes in restricted cash10.714.4Loans receivable, net29.029.1Proceeds from discontinued operations sold-47.0Business acquisitions, net of cash acquired(233.9)(105.9)Other42.341.5Net investing cash flows(308.8)(118.3)FinancingDebt related proceeds (payments), net140.0(104.6)Employee stock plan proceeds15.735.6Share repurchases and forward contracts(475.2)(50.1)Noncontrolling interest acquired(2.5)-Dividends paid(70.6)(71.7)Net financing cash flows(392.6)(190.8)Foreign exchange rates effect on cash 1.2(1.7)Net change in cash and equivalents(253.7)301.6Beginning cash and equivalents460.0158.4Ending cash and equivalents$ 206.3$ 460.0 SUPPLEMENTAL DATA (Unaudited)Revenue MetricsPeriods Ended September 30,Fourth QuartersYears2012201120122011In millions, unless otherwise notedGaming OperationsRevenues$ 263.8$ 269.6$ 1,040.0$ 1,036.5North America229.6234.9907.8913.8International34.234.7132.2122.7Gross margin61%57%61%61%North America60%55%60%59%International71%72%70%73%Installed base ('000)57.153.957.153.9North America43.440.943.440.9International13.713.013.713.0Average revenue per unit per day (0.00)$50.83$55.33$51.49$53.34Product SalesRevenues$ 313.4$ 256.8$    966.8$    883.9North America224.2161.4648.2566.2International89.295.4318.6317.7Machines$ 217.5$ 171.7$    653.5$    558.1North America152.9100.9421.3324.7International64.670.8232.2233.4Non-machine$   95.9$   85.1$    313.3$    325.8North America71.360.5226.9241.5International24.624.686.484.3Gross margin56%54%54%55%North America58%56%57%56%International49%50%49%54%Units recognized ('000)14.511.343.637.5North America10.47.129.122.8International4.14.214.514.7Units shipped ('000)[includes units where revenues deferred]14.611.144.235.9North America10.46.529.320.9New1.91.47.34.9Replacement8.55.122.016.0International4.24.614.915.0New1.21.95.66.5Replacement3.02.79.38.5Average revenue per unit ('000)$   21.6$   22.7$      22.2$      23.6North America21.622.722.324.8International21.822.722.021.6Average machine sales price ('000)$   15.0$   15.2$      15.0$      14.9North America14.714.214.514.2International15.816.916.015.9InteractiveRevenues$   53.9$   13.4$    143.9$      36.6Social gaming35.8-87.0-IGTi18.113.456.936.6Gross margin62%51%56%51%Social gaming61%-61%-IGTi65%51%49%51%Social Gaming (DoubleDown) Average User Statistics*Daily active users (DAU) ('000)1,4151,372Monthly active users (MAU) ('000)5,0725,097Bookings per DAU (0.00)$0.28$0.26*as a single application with multiple games, active users equal unique usersReconciliations of GAAP to Non-GAAP Adjusted Measures (in millions, except EPS) Fourth Quarter Ended September 30, 2012Continuing OperationsCost of RevenuesOperatingExpensesOperatingIncomeNetEarnings (a)DilutedEPSGAAP measures$     261.6$    261.2$    108.3$         90.1$0.33% of revenue41%17%Acquisition related charges:(b)Contingent retention & earn-out-(31.3)31.319.90.07Amortization of intangibles(1.8)(4.7)6.54.10.02Impairment and restructuring:Patents (Walker Digital)-(14.6)14.69.30.03Notes (Alabama)-(12.8)12.88.10.03Entraction reorganization-(15.1)15.1(29.6)(0.10)Total non-GAAP adjustments(1.8)(78.5)80.311.80.05Adjusted measures$     259.8$    182.7$    188.6$       101.9$0.38% of revenue. 29%30%Year Ended September 30, 2012Continuing OperationsCost of RevenuesOperatingExpensesOperatingIncomeNetEarnings (a)DilutedEPSGAAP measures$     913.1$    815.9$    421.7$       249.7$0.86% of revenue38%20%Acquisition related charges:(b)Contingent retention & earn-out-(69.1)69.144.10.15Amortization of intangibles(5.8)(13.3)19.112.20.04Professional fees-(5.8)5.83.70.01Impairment and restructuring:-Patents (Walker Digital)-(14.6)14.69.30.03Notes (Alabama)-(12.8)12.88.10.03Entraction reorganization-(15.1)15.1(29.6)(0.10)Distributor settlement-(3.1)3.12.00.01Severance-(2.5)2.51.60.01Total non-GAAP adjustments(5.8)(136.3)142.151.40.18Adjusted measures$     907.3$    679.6$    563.8$       301.1$1.04% of revenue32%26%(a)Adjustments tax effected at 37%, except Entraction impairment included tax benefit of $44.7 million(b) Primarily related to DoubleDown We believe that certain non-GAAP measures, when presented in conjunction with comparable GAAP (Generally Accepted Accounting Principles) measures, are useful because that information is an appropriate measure for evaluating our operating performance. Non-GAAP information is used to evaluate business performance and management's effectiveness. These measures should be considered in addition to, not as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. Non-GAAP measures may not be calculated in the same manner by all companies and therefore may not be comparable.Fourth Quarter Ended September 30, 2011Continuing OperationsRevenueCost of RevenuesOperatingExpensesOperatingIncomeNetEarnings (a)DilutedEPSGAAP measures$    539.8$     242.0$    182.0$    115.8$         60.0$0.20% of revenue34%21%IP Usage settlements(2.0)(6.8)-4.83.00.01Impairment--(15.8)15.810.00.03Total non-GAAP adjustments(2.0)(6.8)(15.8)20.613.00.04Adjusted measures$    537.8$     235.2$    166.2$    136.4$         73.0$0.24% of revenue31%25%Year Ended September 30, 2011Continuing OperationsRevenueCost of RevenuesOperatingExpensesOperatingIncomeNetEarnings (a)DilutedEPSGAAP measures$ 1,957.0$     818.6$    633.5$    504.9$       292.3$0.97% of revenue32%26%IP Usage settlements(2.0)(6.8)-4.83.00.01Impairment--(15.8)15.810.00.03Investment gain----(4.3)(0.01)Certain discrete tax items (benefits)----(22.1)(0.07)Total non-GAAP adjustments(2.0)(6.8)(15.8)20.6(13.4)(0.04)Adjusted measures$ 1,955.0$     811.8$    617.7$    525.5$       278.9$0.93% of revenue32%27%(a)Adjustments tax effected at 36%Adjusted EBITDA For The Periods Ended September 30,Fourth QuartersYears2012201120122011GAAP Income from continuing operations$   90.1$   60.0$ 249.7$ 292.3Other (income) expense, net15.616.978.977.0Income tax provision2.638.993.1135.6Depreciation and amortization61.060.4240.3221.8Other charges:Share-based compensation 7.88.233.239.7Contingent acquisition related costs31.3-69.1-Impairment and restructuring42.515.842.515.8Adjusted EBITDA $ 250.9$ 200.2$ 806.8$ 782.2Free Cash Flow For The Years Ended September 30,20122011GAAP net operating cash flows$ 446.5$ 612.4Investment in property, plant and equipment(43.8)(14.1)Investment in gaming operations equipment(162.4)(189.2)Investment in intellectual property(2.5)(1.8)Free Cash Flow (before dividends)237.8407.3Dividends paid(70.6)(71.7)Free Cash Flow (after dividends)$ 167.2$ 335.6SOURCE International Game TechnologyFor further information: Matt Moyer, Vice President, IGT Investor Relations, +1 866-296-4232