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International Game Technology at Bear, Stearns & Co. Inc. Retail, Restaurants & Consumer Conference - Final.

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Original Source: FD (FAIR DISCLOSURE) WIRE

UNIDENTIFIED SPEAKER: Good morning. Our next presenter is Pat Cavanaugh, Executive Vice President to the Investor Relations at IGT. Pat will go through a presentation and then we'll open it up to questions. And before turning it over to Pat, I just have to read this.

IGT is, or during the past 12 months, has been an investment banking client and a non-investment client of securities related services of Bear Stearns. Bear Stearns or one of its affiliates has performed, or is performing, investment banking services, for which it has received a fee from this Company. And then lastly, within the last 12 months, Bear Stearns or one of its affiliates has received non-investment banking compensation from IGT.

With that, I'll turn it over to Pat.

PAT CAVANAUGH, VP, CORP. FINANCE, INVESTOR RELATIONS, INTERNATIONAL GAME TECHNOLOGY: Very good. Thank you, Joe, and good morning, everyone. Before we begin, let me remind you that this presentation may contain forward-looking statements under the meaning of the Private Securities Litigation Reform Act of 1995 and certain non-GAAP financial measures. Although we believe our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed, and we undertake no obligation to update our forward-looking statements to reflect future events or circumstances. As required by the SEC, we provide a reconciliation of any non-GAAP financial measures on our Investor Relations website at IGT.com.

With that said, I'll first take you through an overview of the Company for those of you who are either new to the story or refreshing your memory of who IGT is, and then move on to the more pertinent details.

IGT is a world leader is the provision of gaming technologies. We operate in every legal jurisdiction in the world, and by virtue of that, we are the world's most regulated gaming company, operator or supplier alike. We employ about 5400 people around the globe; about 80% of those people are based here in the U.S., so it's about 1500 of those dedicated to the area of product development and product innovation.

We have superior manufacturing capabilities and distribution throughout the world. We manufacture casino-style devices for every market in the world. Most of those are produced in our plant in Reno, Nevada. We also have plants in Manchester, England, where we produce devices for the AWP or Amusement With Prize market, and then we have a plant in Tokyo, Japan, where we build devices unique to that market, the Pachisuro or pachislots, as they're known.

Our diverse business model allows us to continue to deliver stable earnings and cash flows and you'll continue to see us migrate that business model as we move forward to something that's -- it's not outright re-occurring. It is much more predictable and with higher margins.

Some current initiatives that are underway at IGT is we'll continue to leverage our industry-leading content and intellectual property portfolio to ensure that we maintain a leading position in this industry. IGT recognized early on the value of intellectual property and its innovations, and that's one of the reasons that our industry enjoys the kind of margins that it does today is because we produce things that hopefully, don't just become commodities.

We're very focused on the systems-based delivery of applications and content. You've heard this discussed and referred to as server-based gaming. I'll talk in more detail about that technology as we go through the area of product innovation and what we're doing in the area of product development. And this view will help us migrate again our business model to something that's much more software and services in its orientation, and for that reason, hopefully, much more predictable.

We continue to serve new markets worldwide through product innovation. An example of that is our efforts in the area of central determination systems, which are really -- have allowed us to go into markets and replicate the way in which existing gaming -- or legal gaming activities in those markets are conducted. So an example of that would be instant lotteries, which most jurisdictions around the world have. We've been able to replicate the way in which an instant lottery behaves using central determination technology. And so you're basically displaying a lottery outcome as some type of slot machine game.

And we continue to deploy our capital prudently to ensure that we have a consistent earnings and cash flow stream, as we work to make our balance sheet more efficient.

I'll now take you through some of the areas that are currently underway in their product innovation. Last year, we spent a little over $200 million on R&D. During the next five years, we plan to spend some over a billion dollars on research and development. And the reason we're doing that is because our -- we're being demanded to deliver more and more technology all the time by our customers. As they find themselves in more competitive situations, they're turning to technology to help them compete on a more effective basis, and as the industry's largest supplier, it's incumbent upon us to make sure that we're on the leading edge of all of that innovation.

And so we cover the gamut of technology provided on a gaming floor. If any of you were at the Trade...

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