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International Game Technology Summary of Economic Downturn and Its Impact on the Gaming Industry and IGT Prepared August 2010 US Consumer Spending on Commercial Casino Gaming down (11%) from 2007 to2009 (per AGA 2010 State of the States) o 2007 $34.13 billion o 2008 $32.54 billion o 2009 $30.74 billion Las Vegas Visitation Rates and Las Vegas Strip Gaming Revenue (per LVCVA) o Since 2007, visitation rates have significantly declined by roughly 2 million or 5% o 2007 was peak year at 39 million visitors o 2010 is estimated to reach only 37 million o Gaming revenues for the Las Vegas Strip have declined from $8.4 billion in 2007 to a projected $5.7 billion in 2010 (‐32%) Significant Las Vegas Strip casino resort projects impacted by the economic fallout o New Frontier site was sold to ELAD in May 2007 for $1.2 billion or $33 million per acre, which was the most expensive large‐site transaction on the Strip As of August 2010, no construction has begun on the site (originally planned to redevelop the property as the Las Vegas Plaza) o $3 billion Fontainebleau project began in April 2007 (old El Rancho site), but construction was halted in June 2009 (project was 70% complete) Recession led to company not being able to finance/sell the condo units to fund the construction costs Bank of America, the biggest lender, refused to provide further funding for project June 2009 ‐ Chapter 11 bankruptcy filed February 2010 ‐ Carl Ichan assumed partial ownership for $150 million o $5 billion Echelon (Boyd) project halted in August 2008 (old Stardust site) and not expected to start up until 2012 through 2014 In 2008, Boyd stated that construction would be suspended for three to four quarters due to changes in US economic conditions In 2009, Boyd stated that the project would be shelved for three to five years Implications to IGT: IGT stock price $44 at end of December 2007 vs about $15 today ‐‐‐ has trended downward with the Dow Jones average IGT’s domestic headcount was approximately 5,000 in 2007 and is now approximately 4,200, a decline of 16%. Domestic revenues have declined from $2.02 billion in fiscal 2007 to a projected $1.43 billion in fiscal 2010 (‐29%) o Sharp decline in new/expansion opportunities since 2007 IGT sold 22,900 domestic new/expansion units in fiscal 2007 compared to 5,800 units expected for fiscal 2010 IGT’s position as a market leader with broadest product offering means that we are more dependent than our competitors on new/expansion opportunities to drive organic growth o Lagging replacement demand based on tighter operator capex budgets IGT sold 20,100 domestic replacement units in fiscal 2007 versus 14,200 units anticipated for fiscal 2010 Follows lower domestic replacement sales trend in the market overall o Downward trend in gaming operations revenue due to lower industry play levels IGT has largest footprint in domestic participation market (we share net win with operators), therefore we have biggest exposure financially to industry play level volatility Reduction to interest rates has led to higher jackpot funding costs, which erodes gross margin o Cost only applicable to WAP games with progressive jackpots o IGT has largest footprint in WAP space, so we have a bigger exposure to interest rate volatility in our financial results than any of our competitors
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