Letter to Shareholders
Patti HartCEO

This time last year, we made a commitment to all of IGT’s stakeholders – customers, employees, partners, and shareholders. A commitment that stated we would continue to challenge everyone at IGT to think differently, push the limits of what is believed to be impossible, take decisive steps and deliver experiences that will shape the future of gaming entertainment beyond our imagination. We would do so with the goal of generating superior financial results.

For fiscal 2012, I am pleased to report that our team embraced this challenge, executed our strategy, and delivered significant accomplishments that demonstrate we are expanding our global leadership, positioning IGT for meaningful growth, focusing on returns and generating robust financial performance. Notable achievements for 2012 include:

  • Growing total revenues 10% to $2.15 billion
  • Expanding adjusted earnings* 12% to $1.04 per share, making this the third straight year we’ve produced double digit adjusted earnings per share growth
  • Returning over $545 million dollars in cash to shareholders
  • Simultaneously increasing revenues, gross margin, ship share, and average machine price in our core North America product sales business – a result that’s virtually unheard of in any industry
  • Advancing Interactive revenues 293% to $144 million
  • Acquiring the world’s largest social casino and growing this part of our business in a cash flow accretive manner.
* All references to adjusted earnings per share or adjusted EPS are to adjusted earnings per share from continuing operations.
**Adjusted operating income and adjusted earnings per share are non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are provided at the end of this Letter.

We delivered another very strong year for IGT. Equally as important, we have generated consistently strong financial performance for three consecutive years – as evidenced by the concurrent growth in our global revenue, North America ship share, adjusted operating income, and adjusted earnings per share:

I am beyond grateful to be part of a team that embraces the never-ending challenge of reaching higher and thinking bigger. Our consistently strong financial results would not be possible without the dedication and commitment of the global IGT workforce. I am appreciative of each and every one of our nearly 5,000 employees for the progress made and the results delivered – they are leading by example and building a very bright future for IGT founded upon a customer-first focus, uncompromising integrity, and our respect for one another.

For fiscal 2013, our hard work over the past several years has positioned us to continue our momentum across all aspects of our business:

  • We intend to deliver returns by exercising the leverage we have built into our global business model, improving the profitability of our gaming operations, and advancing our systems business with the 100th installation of sbX (and growing).
  • We plan to grow international revenues by enhancing the quantity and quality of our localized content portfolio and increasing our international ship share in responsible, profitable ways.
  • We expect to energize mobile solutions – inside and outside the walls of IGT – by expanding IGTi and social gaming offerings throughout the mobile and online environment and enhancing our own internal processes and tools with mobile solutions that will ensure our productivity remains high.
  • Finally, we plan to further propel our best-in-class content to greater levels across all platforms. Our content strategy has allowed, and we expect will continue to allow us, to distribute the highest volume of best-in-class content across the industry’s broadest, global network: land-based, partner, online, mobile, and social platforms.

As we look to the future, our commitment to you – our shareholders – remains resolute: we will continue to focus on generating strong financial performance, remaining acutely focused on our core business, pursuing growth opportunities responsibly, and returning cash to shareholders in a consistent, efficient manner. Fiscal 2013 is on track to be another remarkable year as we anticipate recording our FOURTH consecutive year of double digit adjusted earnings per share growth.

At IGT, we are passionate about pioneering change for the long term benefit of our customers, employees, partners, and shareholders. We will never settle for anything less … and we believe our BEST is yet to come!

Patti S. Hart

Chief Executive Officer

Forward-Looking Statements

This document contains forward-looking statements involving risks and uncertainties, including 2013 financial and operational goals and expectations. You can identify these statements by the fact that they use words such as "anticipate", "believe", "estimate", "expect", "intend", "project", "plan", "on track", and other words and terms of similar meaning. Actual results may differ materially from the results predicted, and reported results should not be considered an indication of future performance. Information about potential risk factors that could affect IGT’s business and financial results is included in IGT’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the 2012 fiscal year, which is available on the SEC website at www.sec.gov and on IGT’s investor relations website at www.IGT.com/InvestorRelations. IGT does not intend, and undertakes no duty, to update any forward-looking statements to reflect subsequent events or circumstances.

Unaudited Supplemental Data

Reconciliations of GAAP to Non-GAAP Adjusted Measures

(In millions, except EPS)

Year Ended September 30, 2012

Continuing Operations
Revenue Cost of
Revenues
Operating
Expenses
Operating
Income
Operating
Margin
Net
Earnings (a)
Diluted
EPS

GAAP measures $2,150.7 $913.1 $815.9 $421.7 $249.7 $0.86
% of revenue 38% 20%
Acquisition related charges:(b)
Contingent retention & earn-out - - (69.1) 69.1 44.1 0.15
Amortization of intangibles - (5.8) (13.3) 19.1 12.2 0.04
Professional fees - - (5.8) 5.8 3.7 0.01
Impairment and restructuring:
Patents (Walker Digital) - - (14.6) 14.6 9.3 0.03
Notes (Alabama) - - (12.8) 12.8 8.1 0.03
Entraction reorganization - - (15.1) 15.1 (29.6) (0.10)
Distributor settlement - - (3.1) 3.1 2.0 0.01
Severance - - (2.5) 2.5 1.6 0.01

Total non-GAAP adjustments - (5.8) (136.3) 142.1 7% 51.4 0.18

Adjusted measures $2,150.7 $907.3 $679.6 $563.8 26% $301.1 $1.04
% of revenue 32% 26%
(a)Adjustments tax effected at 37%, except Entraction impairment included tax benefit of $44.7 million
(b) Primarily related to DoubleDown

Unaudited Supplemental Data

Reconciliations of GAAP to Non-GAAP Adjusted Measures

(In millions, except EPS)

Year Ended September 30, 2011

Continuing Operations

Revenue Cost of
Revenues
Operating
Expenses
Operating
Income
Operating
Margin
Net
Earnings (a)
Diluted
EPS

GAAP measures $1,957.0 $818.6 $633.5 $504.9 26% $292.3 $0.97
% of revenue 32% 26%
IP Usage settlements (2.0) (6.8) - 4.8 0% 3.0 0.01
Impairment - - (15.8) 15.8 1% 10.0 0.03
Investment gain - - - - 0% (4.3) (0.01)
Certain discrete tax items (benefits) - - - - 0% (22.1) (0.07)

Total non-GAAP adjustments (2.0) (6.8) (15.8) 20.6 1% (13.4) (0.04)

Adjusted measures $1,955.0 $811.8 $617.7 $525.5 27% $278.9 $0.93
% of revenue 32% 27%

(a)Adjustments tax effected at 36%

Unaudited Supplemental Data

Reconciliations of GAAP to Non-GAAP Adjusted Measures

(In millions, except EPS)

Year Ended September 30, 2010

Continuing Operations

Revenue Cost of
Revenues
Operating
Expenses
Operating
Income
Operating
Margin
Net
Earnings (a)
Diluted
EPS
GAAP measures $1,917.2 $829.9 $662.5 $424.8 $219.6 $0.73
% of revenue 35% 22%
Impairment and restructuring - - (68.4) 68.4 42.6 0.15
Investment loss (no tax benefit) - - - - 19.9 0.07
Debt refinancing charges - - - 2.5 0.01
Certain discrete tax items (benefits) - - - - (36.7) (0.12)

Total non-GAAP adjustments - - (68.4) 68.4 4% 28.3 0.11

Adjusted measures $1,917.2 $829.9 $594.1 $493.2 26% $247.9 $0.84
% of revenue 31% 26%

(a)Adjustments tax effected at 38%

Unaudited Supplemental Data

Reconciliations of GAAP to Non-GAAP Adjusted Measures

(In millions, except EPS)

Year Ended September 30, 2009

Continuing Operations

Revenue Cost of
Revenues
Operating
Expenses
Operating
Income
Operating
Margin
Net
Earnings (a)
Diluted
EPS

GAAP measures $2,018.8 $905.2 $781.2 $332.4 $148.7 $0.50
% of revenue 39% 16%
Impairment and restructuring - - (109.1) 109.1 68.2 0.24
Investment loss - - - - 14.4 0.05
Debt refinancing charges - - (1.8) 1.8 3.0 0.01
Certain discrete tax items (benefits) - - - - (17.1) (0.06)

Total non-GAAP adjustments - - (110.9) 110.9 5% 68.5 0.24

Adjusted measures $2,018.8 $905.2 $670.3 $443.3 22% $217.2 $0.74
% of revenue 33% 22%

(a)Adjustments tax effected at 38%
Adjusted earnings per share from continuing operations is a non-GAAP financial measure. We believe that certain non-GAAP financial 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 financial measures may not be calculated in the same manner by all companies and therefore may not be comparable. In addition, all references to "adjusted earnings" or "adjusted EPS" refer to adjusted earnings per share from continuing operations.
2012 Highlights

REALIZING OUR VISION

IGT’s solid financial performance in fiscal year 2012 builds on the success we’ve had over the previous two years; a testament to the effectiveness of our sound strategy and day to day management of our business. We’ve positioned ourselves for sustained growth through continued focus on our core electronic gaming business, our commitment to innovation and our disciplined investments in related business opportunities and new markets. All of this has led to our robust fiscal year 2012 financial performance.

Summary of our key accomplishments during Fiscal Year 2012 include:

  • Grew total revenues by 10% to over $2.1 billion
  • Expanded adjusted earnings per share from continuing operations1 12% to $1.04 per share
  • Returned over $545 million in cash to shareholders
  • Growing the world’s largest social casino
  • Advanced Interactive revenues 293% to $144 million
  • Delivered adjusted EPS percentage growth in double digits for three straight years
1Adjusted earnings per share from continuing operations is a non-GAAP financial measure; reconciliation of non-GAAP to GAAP measures is included at the end of this letter.
In addition, all references to "adjusted earnings" or "adjusted EPS" refer to adjusted earnings per share from continuing operations.

WHY IGT?

IGT is a true global leader in the gaming industry, providing products and services in almost every legal gaming jurisdiction on the planet. For our customers, IGT offers an exhilarating line-up of games, a total systems solution for unforgettable player experiences, and innovations that bring thrilling content to life on any device.

IGT’s market leadership, its global footprint, history of innovation and unrivaled content library has translated into impressive financial results and consistent returns for our shareholders. In fact, IGT has delivered double digit percentage growth in adjusted EPS for three straight years. In North America last year, we grew our ship share, improved our profit margins and increased average machine price, a remarkable achievement for any consumer-oriented company.

IGT is delivering on four key strategies to move ahead in a globally competitive landscape:

1. Expanding global leadership

  • Profitably growing ship share
  • Leveraging a diverse network of content creators across the broadest global distribution network

2. Positioning for growth

  • Pursuing new markets and forms of gaming worldwide
  • Growing the largest online social gaming casino in the world

3. Focusing on returns

  • Increasing returns on invested capital
  • Converting revenue to operating cash flow at a high rate
  • Responsibly managing capital expenditures

4. Delivering robust financial performance

  • Double digit growth in adjusted EPS for 3 straight years
  • Returned $860 million of capital to shareholders FY09-FY12

CORE STRENGTH

Our 2012 fiscal year performance marked our third consecutive year of double-digit adjusted earnings percentage growth, which underscores our success in growing our core business.

IGT is the global market leader in gaming. Since fiscal 2010, we’ve expanded our global installation base, while making our capital more efficient. This diligent focus on overall returns has allowed us to maintain margins and gross profit.

In North America last year, we grew our ship share, improved our profit margins and increased average sales price, a remarkable achievement for any consumer-oriented company. Across our international segment, we have increased the quality and quantity of our localized content driving a better player experience.

*Adjusted operating income and adjusted earnings per share are non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are provided at the end of this Letter.

CENTERED ON CONTENT

The engine that helps power IGT’s financial achievements is our world-class content. Our extensive library of high-performing game themes is unrivaled and one of our most valuable assets. At IGT, we are committed to leveraging this content to anyone, anywhere, on any device.

One to Many

Our content strategy is to generate the most entertaining games, anywhere, and to distribute them broadly across the entire global spectrum of gaming platforms, devices and geographies.

High ROI Per Game

IGT’s research and development is efficient and produces the most games each year in the industry. Our unique approach produces sustainable, differentiated returns resulting in high returns on investments.

The DoubleDown Advantage

As the convergence of land-based, online, mobile and social gaming continues, our network of content creators and distribution channels must also grow to match our players’ entertainment choices. With the acquisition of DoubleDown, the world’s largest online social gaming casino and a top 5 grossing game application on Facebook, we gained another way to reach players and distribute our library of well-loved games.

DoubleDown improves our position for growth beyond what our core business provides. We are already seeing the following meaningful, positive impact on our financial results:

  • Social gaming revenues in the fourth quarter of fiscal 2012 increased 20% sequentially to $36 million, primarily driven by an increase in both daily active users and bookings per daily active user
  • Average daily active users (DAUs) were 1.4 million in the fourth quarter of fiscal 2012, an increase of 4% compared to the prior sequential quarter
  • Average bookings per DAU increased 8% sequentially to $0.28 in the fourth quarter of fiscal 2012

Our land-based casino customers also are seeing returns as they engage with us through our Casino Partnership Program and embed the DoubleDown casino application on their individual property web sites. This allows us to extend our content to more players while benefitting our core land-based customers at the same time.

Content is our center and a sustainable competitive advantage for IGT. It’s what our customers want, and what our players love.

Capital Allocation

IGT’s responsible approach to capital allocation has focused on funding growth while also providing returns to our shareholders. Our core growth methodologies included new product development, a strong content library, an emphasis on International markets and an $800-million investment in continued research and development over the last four fiscal years. IGT’s strategic outlays for fiscal year 2012 balanced our disciplined financial metrics with a concentration on growing our talent, technology, distribution and content resources.

In fiscal 2012 alone, IGT returned over $545 million in cash to shareholders and an additional $600 million remains available under the Company’s current share repurchase authorization. We remain committed to driving returns and growing IGT in a manner that is profitable, responsible and in the best interest of our shareholders.

Positioned for Growth

IGT’s Board, management team and employees are focused on executing our growth strategy, which is designed to propel IGT into the future. We are committed to consistently delivering strong financial performance, growing our core business and returning capital to our shareholders. We plan to achieve our success by driving returns in our product sales and gaming operations business, increasing revenues and profitability in international markets, focusing on profitable growth and consistently and efficiently return capital to our shareholders. We are on track to deliver our FOURTH consecutive year of double- digit adjusted EPS percentage growth in fiscal year 2013!

Product Videos

Forward-Looking Statements

This document contains forward-looking statements involving risks and uncertainties, including 2013 financial and operational goals and expectations. You can identify these statements by the fact that they use words such as "anticipate", "believe", "estimate", "expect", "intend", "project", "plan", "on track", and other words and terms of similar meaning. Actual results may differ materially from the results predicted, and reported results should not be considered an indication of future performance. Information about potential risk factors that could affect IGT’s business and financial results is included in IGT’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the 2012 fiscal year, which is available on the SEC website at www.sec.gov and on IGT’s investor relations website at www.IGT.com/InvestorRelations. IGT does not intend, and undertakes no duty, to update any forward-looking statements to reflect subsequent events or circumstances.

Unaudited Supplemental Data

Reconciliations of GAAP to Non-GAAP Adjusted Measures

(In millions, except EPS)

Year Ended September 30, 2012

Continuing Operations
Revenue Cost of
Revenues
Operating
Expenses
Operating
Income
Operating
Margin
Net
Earnings (a)
Diluted
EPS

GAAP measures $2,150.7 $913.1 $815.9 $421.7 $249.7 $0.86
% of revenue 38% 20%
Acquisition related charges:(b)
Contingent retention & earn-out - - (69.1) 69.1 44.1 0.15
Amortization of intangibles - (5.8) (13.3) 19.1 12.2 0.04
Professional fees - - (5.8) 5.8 3.7 0.01
Impairment and restructuring:
Patents (Walker Digital) - - (14.6) 14.6 9.3 0.03
Notes (Alabama) - - (12.8) 12.8 8.1 0.03
Entraction reorganization - - (15.1) 15.1 (29.6) (0.10)
Distributor settlement - - (3.1) 3.1 2.0 0.01
Severance - - (2.5) 2.5 1.6 0.01

Total non-GAAP adjustments - (5.8) (136.3) 142.1 7% 51.4 0.18

Adjusted measures $2,150.7 $907.3 $679.6 $563.8 26% $301.1 $1.04
% of revenue 32% 26%
(a)Adjustments tax effected at 37%, except Entraction impairment included tax benefit of $44.7 million
(b) Primarily related to DoubleDown

Unaudited Supplemental Data

Reconciliations of GAAP to Non-GAAP Adjusted Measures

(In millions, except EPS)

Year Ended September 30, 2011

Continuing Operations

Revenue Cost of
Revenues
Operating
Expenses
Operating
Income
Operating
Margin
Net
Earnings (a)
Diluted
EPS

GAAP measures $1,957.0 $818.6 $633.5 $504.9 26% $292.3 $0.97
% of revenue 32% 26%
IP Usage settlements (2.0) (6.8) - 4.8 0% 3.0 0.01
Impairment - - (15.8) 15.8 1% 10.0 0.03
Investment gain - - - - 0% (4.3) (0.01)
Certain discrete tax items (benefits) - - - - 0% (22.1) (0.07)

Total non-GAAP adjustments (2.0) (6.8) (15.8) 20.6 1% (13.4) (0.04)

Adjusted measures $1,955.0 $811.8 $617.7 $525.5 27% $278.9 $0.93
% of revenue 32% 27%

(a)Adjustments tax effected at 36%

Unaudited Supplemental Data

Reconciliations of GAAP to Non-GAAP Adjusted Measures

(In millions, except EPS)

Year Ended September 30, 2010

Continuing Operations

Revenue Cost of
Revenues
Operating
Expenses
Operating
Income
Operating
Margin
Net
Earnings (a)
Diluted
EPS
GAAP measures $1,917.2 $829.9 $662.5 $424.8 $219.6 $0.73
% of revenue 35% 22%
Impairment and restructuring - - (68.4) 68.4 42.6 0.15
Investment loss (no tax benefit) - - - - 19.9 0.07
Debt refinancing charges - - - 2.5 0.01
Certain discrete tax items (benefits) - - - - (36.7) (0.12)

Total non-GAAP adjustments - - (68.4) 68.4 4% 28.3 0.11

Adjusted measures $1,917.2 $829.9 $594.1 $493.2 26% $247.9 $0.84
% of revenue 31% 26%

(a)Adjustments tax effected at 38%

Unaudited Supplemental Data

Reconciliations of GAAP to Non-GAAP Adjusted Measures

(In millions, except EPS)

Year Ended September 30, 2009

Continuing Operations

Revenue Cost of
Revenues
Operating
Expenses
Operating
Income
Operating
Margin
Net
Earnings (a)
Diluted
EPS

GAAP measures $2,018.8 $905.2 $781.2 $332.4 $148.7 $0.50
% of revenue 39% 16%
Impairment and restructuring - - (109.1) 109.1 68.2 0.24
Investment loss - - - - 14.4 0.05
Debt refinancing charges - - (1.8) 1.8 3.0 0.01
Certain discrete tax items (benefits) - - - - (17.1) (0.06)

Total non-GAAP adjustments - - (110.9) 110.9 5% 68.5 0.24

Adjusted measures $2,018.8 $905.2 $670.3 $443.3 22% $217.2 $0.74
% of revenue 33% 22%

(a)Adjustments tax effected at 38%
Adjusted earnings per share from continuing operations is a non-GAAP financial measure. We believe that certain non-GAAP financial 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 financial measures may not be calculated in the same manner by all companies and therefore may not be comparable. In addition, all references to "adjusted earnings" or "adjusted EPS" refer to adjusted earnings per share from continuing operations.
DIRECTORS AND EXECUTIVE OFFICERS

BOARD OF DIRECTORS

Philip G. Satre
Chairman of the Board of IGT
Retired Chairman of Harrah's Entertainment, Inc.
Paget L. Alves
Chief Sales Officer
Sprint Nextel Corporation
Janice Chaffin
Group President, Consumer Business Unit
Symantec Corporation
Greg Creed
Chief Executive Officer
Taco Bell® Corporation
Patti S. Hart
Chief Executive Officer
International Game Technology
Robert J. Miller
Principal
Robert J. Miller Consulting
David E. Roberson
Board Member Quantum Corporation,
TransLattice, Inc. and RagingWire
Enterprise Solutions, Inc.
Vincent L. Sadusky
President and Chief Executive Officer
LIN TV Corporation

EXECUTIVE OFFICERS

Patti S. Hart
Chief Executive Officer
Eric A. Berg
Chief Operations Officer
Paul C. Gracey, Jr.
General Counsel and Secretary
Robert C. Melendres
Executive Vice President Emerging Business
Eric P. Tom
Executive Vice President Global Sales
John M. Vandemore
Chief Financial Officer and Treasurer
PURPOSE AND PROMISE

PURPOSE

Lead and transform the gaming world by creating and providing the most innovative, ubiquitous, disruptive gaming experiences and solutions anywhere... for the demands of today and the opportunities of tomorrow.

PROMISE

Generate unrivaled growth and value for all IGT stakeholders.

MORE FOR INVESTORS

ONLINE RESOURCE

For in-depth information including corporate governance, stock details, financial information, earnings releases, events, and much more, visit the Investor Relations area on IGT.com.

Contact Us

Complete and submit this form and IGT will be in touch.

© 2014 IGT. All rights reserved. Privacy Policy | Terms of Use