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IGT reports Q3 results

"Although the market environment continues to be impacted by unfavorable economic conditions, IGT delivered strong revenues and gross profits during the third quarter," said Chairman and CEO TJ Matthews. "We furthered our server-based gaming initiatives with the release of several new models on our Advanced Video Platform (AVP(R)) and the completion of the strategic acquisition of Million-2-1 in the third quarter, as well as closing the acquisition of substantially all of the assets of Cyberview Technology, Inc. in July. In addition, we have repurchased 14.6 million shares of IGT stock since April 18, 2008."

Gaming Operations

Third quarter revenues and gross profit from gaming operations were $333.6 million and $202.1 million, respectively, compared to $341.9 million and $210.6 million for the same quarter last year. For the nine months ended June 30, 2008, revenues and gross profit from gaming operations totaled $1.0 billion and $585.4 million, respectively, compared to $1.0 billion and $608.3 million in the same prior year period. For the current quarter and year-to-date, gross margins on gaming operations were 61% and 58%, respectively, compared to 62% and 60% in the prior year. Gross profit and margins in the current year-to-date period were impacted by significant interest rate reductions that increased jackpot-related expense and technical obsolescence charges for fixed assets related to our transition to new game cabinets and platforms. In the prior year-to-date period, gross profit and margins were favorably impacted by a gain from the Gulf Coast hurricane property damage portion of the insurance proceeds that totaled $5.0 million before tax.

As of June 30, 2008, our gaming operations installed base totaled 59,200, an increase of 1,000 units from the prior year quarter and 500 units from the immediately preceding quarter. Sequential and year-over-year growth was primarily the result of expansion in international lease operations markets.

Worldwide product sales revenues generated third quarter gross profit of $185.6 million compared to $186.0 million in the prior year. Non-machine revenues (comprised of gaming systems, parts, conversions and other fees) totaled $115.3 million or 34% of total product sales versus $91.6 million or 25% in the comparable prior year quarter. Although domestic shipments continued to be affected by the lower levels of North America replacement demand, shipments to new or expanded casinos improved 2,200 units compared to the prior year quarter. Internationally, fewer shipments, primarily into Japan and the UK, were partially offset by strong shipments into Latin America.

For the nine-month period ended June 30, 2008, worldwide product sales generated gross profit of $479.4 million versus $496.9 million in the prior year due to a reduction in machine sales partially offset by growth in non-machine revenues. Non-machine revenues improved to $301.8 million or 34% of total product sales year-to-date compared to $266.1 million or 28% of total product sales in the prior year.

Gross margin improvements for both the quarter and year-to-date periods are primarily due to fewer machine shipments into the lower margin Japan and UK markets combined with a stronger mix of non-machine sales.

Operating Expenses and Other Income/Expense

Consolidated operating expenses totaled $200.7 million in the third quarter and $555.4 million year-to-date compared to $180.3 million and $501.3 million in the same prior year periods, respectively. Prior year-to-date operating expenses were favorably impacted by gains from the Gulf Coast business interruption portion of the insurance proceeds totaling $12.0 million and the sale of a corporate aircraft totaling $5.8 million. Excluding these items, operating expenses increased primarily as a result of higher staffing expense to support sales and development initiatives, as well as higher bad debt provisions. Unfavorable bad debt provisions totaled $4.4 million for the quarter and $5.5 million year-to-date versus favorable provisions of $2.0 million and $7.5 million in the same prior year periods, respectively.

Other expense, net, in the third quarter increased $5.4 million over the prior year quarter, primarily due to higher interest expense on increased borrowings.

Cash Flows & Balance Sheet

For the nine-month period ended June 30, 2008, IGT generated $360.7 million in cash from operations on net income of $290.5 million compared to $564.9 million on net income of $385.6 million in the prior year period. Lower year-over-year cash from operations was primarily the result of lower net income, changes in working capital and additional prepayments to secure long-term licensing rights.

Working capital increased to $779.0 million at June 30, 2008 compared to $595.5 million at September 30, 2007. Cash equivalents and short-term investments (inclusive of restricted amounts) totaled $382.1 million at June 30, 2008 versus $400.7 million at September 30, 2007. Debt totaled $2.0 billion at June 30, 2008 compared to $1.5 billion at September 30, 2007. The available capacity on our $2.5 billion line of credit totaled $1.4 billion as of June 30, 2008.

Capital Deployment

On May 19, 2008, our Board of Directors declared a quarterly cash dividend of fourteen cents ($0.14) per share, payable on July 1, 2008 to shareholders of record on June 11, 2008.

During the third quarter, IGT repurchased 8.1 million shares at an aggregate cost of $265.9 million. For the nine-month period ended June 30, 2008, share repurchases totaled 13.9 million shares at an aggregate cost of $510.9 million. An additional 6.5 million shares have been repurchased at an aggregate cost of $157.5 million from June 30, 2008 through July 16, 2008. The remaining authorization under the Company's stock repurchase program totaled 12.9 million shares at July 16, 2008.

As previously announced on June 26, 2008, IGT will host a conference call regarding its Third Quarter Fiscal Year 2008 earnings release on Thursday, July 17, 2008 at 6:00 a.m. (Pacific Time). The access numbers are as follows:

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