IGT 1Q2010 CONF CALL TRANSCRIPT

IGT 1Q 2010 Conf Call

• One less week in the quarter negatively impacted the quarter by $22.4MM of revenues 
• New accounting for converts increased their share count
• Gaming operations continued to feel the negative impact from the economy and mix shift of the install base
  
  • Excluding the interest benefit margins would have been 57% 
  • Average win per day of $49/day
• Domestic Product sales
  • Product sales margins increased 200 bps due to lower material costs and mix shift to higher margin units
  • While they continue to have limited visibility on replacement units they do feel like replacements have reached a trough
  • 2,500 new units shipped and 3,000 replacement units 
  • 92% of machines shipped where AVP

International product sales benefited from recognition of Rosario shipments and increased European shipments

Expect product sales gross margins to remain in the low 50% range

Continue to move towards their $200MM cost reduction goal

SG&A declined 9%, expect quarterly run rate going forward to be $95-100MM vs. $90MM in FQ1

R&D expense declined 7%, expect a quarterly run rate in the low $50's MM vs $47MM in FQ1

Total D&A inclusive of games operations expense declined, but may increase as they refresh their install base

Interest on the debt component on their convert calculated using a normalized non-convert interest rate will impact them by $30MM or $0.07 for the year. Also new treatment of convert debt increased their debt balance by $145MM and that amount will be amortized going forward

Expect quarterly tax rate to be 37-39% vs 34% in FQ1

Made a lot of progress on converting working capital to cash flow

Capital expenditures expected to trend in the $50-75MM range, although they continue to trend at the lower end of that range

"Sex in the City" is outperforming their expectations with an average yield to IGT of $180/day

Product sales in the Dec quarter has historically been there lowest.  Remain cautiously optimistic on customer demand

MGM is very happy with the performance of their SB system

Hired a head of "new media," who will be in charge of repurposing content for new media

2010 guidance remains $0.77 -$0.87, and excludes one time items and assume no dilution from convertible notes (excludes the 1 cent tax benefit this Q)

Q&A

• Other income line: Interest income = 16MM, Interest expense: $43.2MM, other is $1MM
• How much of the decrease in yields came from mix shift vs. just normal seasonality?
  • Hard to say, probably mostly due to seasonality but definitely some mix shift
• Know that new and expansion units will be off materially in FY2010, assume a decent increase in replacements, but visibility is fairly limited on that front
• Server based feedback from MGM/ Interest from other operators
  • Aria is very pleased with the way the floor is playing
  • Significant interest in their T1 product which they have 
• SG&A and R&D where very low in the quarter, why isn't that going to continue and why isn't IGT going to do over a $1 in EPS this year?
  • R&D Q1 is naturally lower since the team is pre-occupied with G2E.  R&D over time will run at a couple hundred MM. 
  • SG&A had $3MM of deferrals with new compensation plan that positively impacted the Q
  • The real answer is there are no new units shipping in the balance of the FY year, and SG&A and R&D will both be higher, so $1 is a pipe dream
• "Still experiencing a fair amount of mix shift in game operations so there should be continued pressure on yields.  Customers are still conservative on their replacement orders"
• Ship share in the quarter?
  • Won't know until everyone else reports, but think that they are around 40% on the replacement side, and north of 50% for new and expansion units
• Mix of MLD was the same q-o-q. 
• Remainder of the Aria floor should be all SB by June
• More focus on applications vs infrastructure spending compared to prior years
• Yield on IGT's install base (game ops) should continue to stabilize but trend lower due to mix, until they see the impact from new games like Sex in the City
• On the replacement side their just isn't a lot of visibility in demand "shouldn't have a hockey stick increase" and need a pretty significant increase to simply offset the decline in new openings and expansions
• They will also be more prudent in their deployment of game operations capital, and are ok with adding higher ROI but still lower "yielding" units to the install base
• Guidance for international?
  • See improvement in Europe and Latin America, stability in South Africa/ Australia/UK. They aren't forecasting any huge improvements though for international shipments but sounds like they are forecasting some improvement
• Timing on IL VLT shipments:
  • 2011 event before they see shipments, still need a central system and lots of things to do
• Alabama exposure? 
  • Have 3,600 units in that market (Victoryland and Country Crossing) and have $100MM tied up in that market
• Lower ASPs could be partially due to volume discounting and G2E promotions
• Think that their Wheel products will continue to play well despite new competition from BYI