United States
Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the Quarterly Period Ended June 30, 2005
		OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from                      to

Commission File Number 001-10684

International Game Technology

(Exact name of registrant as specified in its charter)

Nevada (State of Incorporation)		88-0173041 (I.R.S. Employer Identification No.)

9295 Prototype Drive
Reno, Nevada 89521
(Address of principal executive offices)

(775) 448-7777
(Registrant’s telephone number, including area code)

www.IGT.com
(Registrant’s website)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes þ No o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding at August 11, 2005
Common Stock par value $.00015625 per share		341,068,550

 

 

INTERNATIONAL GAME TECHNOLOGY

TABLE OF CONTENTS

As of and for the periods ended June 30, 2005 and 2004

				Page
DEFINITIONS				ii
PART I – FINANCIAL INFORMATION					1
Item 1. Unaudited Condensed Consolidated Financial Statements					1
		CONSOLIDATED INCOME STATEMENTS			1
		CONSOLIDATED BALANCE SHEETS			2
		CONSOLIDATED CASH FLOWS STATEMENTS			3
		NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS			5
Item 2. Management’s Discussion and Analysis					18
Item 3. Quantitative and Qualitative Disclosures about Market Risk					33
Item 4. Controls and Procedures					33
PART II – OTHER INFORMATION					34
Item 1. Legal Proceedings					34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds					34
Item 3. Defaults Upon Senior Securities					34
Item 4. Submission of Matters to a Vote of Security Holders					34
Item 5. Other Information					34
Item 6. Exhibits					34
Signature					35
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

DEFINITIONS

Certain abbreviations or acronyms used in this Form 10-Q have the following meanings:

Abbreviation		Definition
Acres		Acres Gaming Incorporated
Act		American Jobs Creation Act of 2004
Anchor		Anchor Gaming
APB		Accounting Principles Board
ARB		Accounting Research Bulletin
ARPU		average product sales revenue per unit
ARS		Auction Rate Securities
ASP		average sales price per machine
AVP®		Advanced Video Platform
CCSC		Colorado Central Station Casino
CDS		central determination system
CIP		construction-in-process
EITF		Emerging Issues Task Force
EPA		Environmental Protection Agency
EPS		earnings per share
ERP		enterprise resource planning
FAS		Financial Accounting Standard
FASB		Financial Accounting Standards Board
FSP		FASB Statement of Position
Friendly Matrix		Friendly Matrix Internet Company LLC
Hi-Tech		Hi-Tech Gaming.com, Ltd.
MDA		management’s discussion & analysis
NDT		The Nevada Department of Taxation
OES		IGT OnLine Entertainment Systems, Inc. and the lottery systems business of VLC, Inc. collectively
OSHA		Occupational Safety & Health Administration
PGIC		Progressive Gaming International
pp		percentage points
R&D		research and development
RFID		radio frequency identification
SAB		Staff Accounting Bulletin
SBG		server-based gaming
SEC		Securities and Exchange Commission
SFAS		Statement of Financial Accounting Standards
SMI		Shuffle Master, Inc.
SG&A		selling, general and administrative
TITO		ticket-in/ticket-out
TRO		temporary restraining order
UK		United Kingdom
US		United States
VIE		variable interest entity
VLT		video lottery terminal
WagerWorks		WagerWorks, Inc.
WAP		wide area progressive
*		not meaningful (in tables)
IGT, we, our, management, the Company		International Game Technology and its consolidated subsidiaries and VIEs unless the context indicates otherwise

PART I – FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

CONSOLIDATED INCOME STATEMENTS

		Quarters Ended								Nine Months Ended
		June 30,								June 30,
		2005				2004				2005				2004
(In thousands, except per share amounts)
Revenues
Product sales		$	274,452			$	315,582			$	880,878			$	1,008,419
Gaming operations			305,104				303,305				890,888				854,613
Total revenues			579,556				618,887				1,771,766				1,863,032
Costs and operating expenses
Cost of product sales			130,751				143,787				445,691				478,603
Cost of gaming operations			140,624				136,843				431,162				385,997
Selling, general and administrative			86,339				72,938				236,543				220,157
Depreciation and amortization			17,157				16,633				50,755				47,158
Research and development			35,759				32,843				103,828				95,736
Provision for bad debts			1,516				4,761				488				16,044
Total costs and operating expenses			412,146				407,805				1,268,467				1,243,695
Operating income			167,410				211,082				503,299				619,337
Other income (expense)
Interest income			28,520				15,656				60,051				43,831
Interest expense			(13,922	)			(22,649	)			(43,200	)			(76,824	)
Loss on debt redemption			—				—				(5	)			(6,891	)
Other			(2,013	)			(1,030	)			(2,688	)			(4,423	)
Total other income (expense)			12,585				(8,023	)			14,158				(44,307	)
Income from continuing operations before tax			179,995				203,059				517,457				575,030
Provision for income taxes			65,251				61,957				186,342				199,586
Income from continuing operations			114,744				141,102				331,115				375,444
Discontinued operations, net of $35,312 tax			—				—				—				58,924
Net income		$	114,744			$	141,102			$	331,115			$	434,368
Basic earnings per share
Continuing operations		$	0.33			$	0.40			$	0.96			$	1.08
Discontinued operations			—				—				—				0.17
Net income		$	0.33			$	0.40			$	0.96			$	1.25
Diluted earnings per share
Continuing operations		$	0.32			$	0.38			$	0.91			$	1.01
Discontinued operations			—				—				—				0.16
Net income		$	0.32			$	0.38			$	0.91			$	1.17
Weighted average shares outstanding
Basic			343,474				348,426				344,828				346,921
Diluted			369,279				378,482				371,907				377,104
Cash dividends declared per share		$	0.12			$	0.10			$	0.36			$	0.30

See accompanying notes.

CONSOLIDATED BALANCE SHEETS

		June 30,				September 30,
		2005				2004
(In thousands, except par value)
Assets
Current assets
Cash and equivalents		$	302,862			$	306,980
Investment securities, at market value			486,689				316,976
Restricted cash and investments			133,348				142,667
Accounts receivable, net of allowances for doubtful accounts of $22,630 and $26,064			309,694				359,714
Current maturities of notes and contracts receivable, net			87,270				55,202
Inventories			180,213				165,601
Investments to fund jackpots to winners			52,013				50,191
Deferred income taxes			38,324				35,944
Prepaid expenses and other			75,785				76,429
Total current assets			1,666,198				1,509,704
Notes and contracts receivable, net			49,805				87,284
Property, plant and equipment, net			354,695				329,058
Investments to fund jackpots to winners			473,959				468,238
Deferred income taxes			47,709				49,056
Intangible assets, net			260,158				258,169
Goodwill, net			1,035,026				1,035,589
Other assets			104,835				135,866
		$	3,992,385			$	3,872,964
Liabilities and Stockholders’ Equity
Liabilities
Current liabilities
Current maturities of notes payable		$	599,616			$	103
Accounts payable			86,161				85,692
Jackpot liabilities			210,263				209,205
Accrued employee benefit plan liabilities			43,004				59,071
Dividends payable			41,198				41,531
Accrued interest			4,510				3,838
Accrued income taxes			28,009				7,537
Other accrued liabilities			176,054				153,032
Total current liabilities			1,188,815				560,009
Notes payable, net of current maturities			200,000				791,848
Non-current jackpot liabilities			502,681				510,057
Other liabilities			39,106				34,401
			1,930,602				1,896,315
Commitments and Contingencies			—				—
Stockholders’ Equity
Common stock: $.00015625 par value; 1,280,000 shares authorized; 712,263 and 707,973 shares issued			111				111
Additional paid-in capital			1,687,725				1,607,717
Treasury stock at cost: 368,947 and 361,882 shares			(2,022,026	)			(1,821,770	)
Deferred compensation			(12,381	)			(11,822	)
Retained earnings			2,408,263				2,201,436
Accumulated other comprehensive income			91				977
			2,061,783				1,976,649
		$	3,992,385			$	3,872,964

See accompanying notes.

CONSOLIDATED CASH FLOWS STATEMENTS

		Nine Months Ended
		June 30,
		2005				2004
(In thousands)
Operations
Net income		$	331,115			$	434,368
Adjustments:
Depreciation, amortization, and asset charges			150,318				115,686
Debt discounts and deferred offering costs			12,413				14,000
Stock-based compensation			2,872				4,063
Provision for bad debts			488				16,044
Provision for inventory obsolescence			13,697				7,530
(Gain) loss on assets sold			(61	)			675
Loss on debt redemption			5				6,891
Gain on sale of discontinued operations			—				(90,820	)
Changes in operating assets and liabilities, net of acquisitions and VIE consolidations:
Receivables			28,323				1,160
Inventories			(28,621	)			(20,442	)
Accounts payable and accrued liabilities			7,392				(54,168	)
Jackpot liabilities			(30,062	)			(29,534	)
Income taxes, net of employee stock plans			47,241				33,320
Other current assets			(18	)			(25,778	)
Other non-current assets			27,239				(42,062	)
Net cash from operations			562,341				370,933
Investing
Capital expenditures			(166,197	)			(141,308	)
Restricted cash			26,485				(234	)
Investment securities proceeds (purchases), net			(186,966	)			196,351
Jackpot annuity investments proceeds (purchases), net			15,900				11,305
Loans receivable cash advanced			(500	)			(20,563	)
Loans receivable payments received			26,280				61,604
Proceeds from assets sold			332				5,164
Proceeds from discontinued operations sold			—				151,548
Business acquisitions			(3,961	)			(109,711	)
Net cash (to) from investing			(288,627	)			154,156
Financing
Debt proceeds (repayments), net			494				(415,337	)
Debt redemption premium			(5	)			(6,368	)
Employee stock plan proceeds			48,993				46,300
Dividends paid			(124,621	)			(104,027	)
Share repurchases			(200,020	)			(24,054	)
Net cash to financing			(275,159	)			(503,486	)
Foreign exchange rates effect on cash			(2,673	)			3,013
Net change in cash and equivalents			(4,118	)			24,616
Beginning cash and equivalents			306,980				440,410
Ending cash and equivalents		$	302,862			$	465,026

See accompanying notes.

Supplemental Cash Flows Information

Depreciation, amortization and asset charges reflected in the cash flows statements is comprised of amounts presented separately on the income statements, plus depreciation and asset charges included in cost of product sales and cost of gaming operations.

		Nine Months Ended
		June 30,
		2005				2004
(In thousands)
Investment securities
Purchases		$	(572,849	)		$	(1,354,668	)
Proceeds from sales			385,883				1,551,019
Net (purchases) proceeds		$	(186,966	)		$	196,351
Jackpot funding
Collections to fund jackpots		$	187,226			$	204,884
Payments to winners			(217,288	)			(234,418	)
Net change in jackpot liabilities			(30,062	)			(29,534	)
Purchases of jackpot annuity investments			(27,606	)			(24,542	)
Proceeds from jackpot annuity investments			43,506				35,847
Net jackpot annuity investments			15,900				11,305
Net jackpot funding cash flows		$	(14,162	)		$	(18,229	)
Capital expenditures
Property, plant and equipment		$	(34,823	)		$	(24,359	)
Gaming operations equipment			(113,226	)			(94,207	)
Intellectual property			(18,148	)			(22,742	)
Total capital expenditures		$	(166,197	)		$	(141,308	)
Payments
Interest		$	6,820			$	73,733
Income taxes			145,908				207,541
Non-cash investing and financing items:
Tax benefit of employee stock plans			27,760				33,208
Treasury stock acquired for stock awards exercised or forfeited			236				108
Interest accretion for jackpot funding investments			23,472				19,465
Interest accretion on zero-coupon convertible debentures			7,768				7,671
Accruals for capital purchases			5,875				—
Acquisitions
Fair value of assets			5,151				149,891
Fair value of liabilities			1,190				40,180
Initial VIE consolidations
Fair value of assets			—				185,244
Fair value of liabilities			—				185,244

See accompanying notes.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

Our consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC and include all adjustments necessary to fairly present our consolidated results of operations, financial position, and cash flows for each period presented. Results for interim periods are not necessarily indicative of results for the full year. This quarterly report should be read in conjunction with our Annual Report on Form 10-K for the year ended September 30, 2004.

Our consolidated financial statements include the accounts of International Game Technology and all majority-owned or controlled subsidiaries and variable interest entities of which we are the primary beneficiary. All appropriate inter-company accounts and transactions have been eliminated. We account for investments in 50% or less owned joint ventures using the equity method.

Our fiscal year is reported on a 52/53-week period that ends on the Saturday nearest to September 30 each year. Similarly, our quarters end on the Saturday nearest to the last day of the quarter end month. For simplicity, all fiscal periods are presented as ending on the calendar month end. Consistent with this practice, the current quarter ended July 2, 2005 is presented as ended June 30, 2005, the prior year quarter ended July 3, 2004 is presented as ended June 30, 2004, and the prior fiscal year ended October 2, 2004 is presented as ended September 30, 2004. The results of operations for fiscal 2005 will contain 52 weeks versus 53 weeks in fiscal 2004. The results of operations for the nine months ended June 30, 2005 contained 39 weeks versus 40 weeks for the nine months ended June 30, 2004. The results of operations for the quarters ended June 30, 2005 and 2004 both contained 13 weeks.

Certain prior period amounts have been reclassified to be consistent with the presentation used in the current period, specifically with respect to the presentation of restricted cash and Auction Rate Securities (ARS) in our balance sheets and cash flows statements.

Restricted cash

In conjunction with the preparation of this quarterly report for the period ended June 30, 2005, we determined it appropriate to classify restricted cash separately from cash and equivalents on our balance sheets. We are required by gaming regulators to maintain sufficient reserves in restricted accounts for the purpose of funding payments to progressive jackpot winners.

Restricted cash totaling $60.1 million at June 30, 2005 and $86.5 million at September 30, 2004 has been presented separately on our balance sheets as a component of restricted cash and investments. The net change in restricted cash is reflected as an increase in investing cash flows of $26.5 million for the nine months ended June 30, 2005 and a decrease of $234,000 for the nine months ended June 30, 2004, rather than as a component of net change in cash as presented previously. Restricted cash provided from our initial VIE consolidations at March 30, 2004 was also reclassified, reducing investing cash flows and net change in cash by $47.5 million for the nine months ended June 30, 2004, and included in supplemental disclosures for non-cash fair value of assets. These reclassifications had no impact on operating cash flows.

ARS

In conjunction with the preparation of the quarterly report for the period ended March 31, 2005, we determined it appropriate to classify our ARS as short-term investments. Although ARS have an underlying long-term maturity, they are traded and interest rates reset through a modified Dutch auction at predetermined short-term intervals, usually 7, 28, or 35 days. We previously classified ARS as cash equivalents based on the period from purchase to first auction date.

We reclassified ARS totaling $371.5 million (including restricted amount of $56.2 million) at September 30, 2004 from cash equivalents to short-term investments. Additionally, we reclassified ARS purchases of $1.4 billion and proceeds of $1.6 billion for the nine months ended June 30, 2004, increasing investing cash flows, as well as net change in cash and equivalents, by $196.4 million. As of and for the nine months ended June 30, 2005, ARS purchases totaled $572.8 million, proceeds totaled $385.9 million, and the ending balance totaled $558.5 million (including restricted amount of $73.2 million).

Recently Issued Accounting Standards

FSP FAS143-1

In June 2005, the FASB issued final FSP FAS143-1, Accounting for Electronic Equipment Waste Obligations, to address accounting for obligations associated with the European Union’s Directive 2002/96/EC on Waste Electrical and Electronic Equipment. The Directive, enacted in 2003, requires EU-member countries to adopt legislation to regulate the collection, treatment, recovery, and environmentally sound disposal of electrical and electronic waste equipment. The Directive distinguishes between products put on the market after August 13, 2005 as new waste and before that date as historical waste. FSP FAS143-1 only addresses accounting for historical waste and is required to be applied the later of the first reporting period ending after June 8, 2005 or the date of adoption of the law by the applicable European Union member country. We anticipate no material impact on our results of operations, financial position or cash flows as a result of adopting this FSP.

SFAS 154

In May 2005, the FASB issued SFAS 154, Accounting Changes and Error Corrections, requiring retrospective application to prior-period financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS 154 also redefines “restatement” as the revising of previously issued financial statements to reflect the correction of errors made in fiscal years beginning after December 15, 2005, which will be IGT’s fiscal year 2007. Although we have no current application for this statement, the adoption of this statement may impact our future results of operations, financial position or cash flows.

FIN 47

In March 2005, the FASB issued FIN 47, Accounting for Conditional Asset Retirement Obligations, an Interpretation of FAS 143. FIN 47 requires recognition of a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. When sufficient information exists, uncertainty about the amount and/or timing of future settlement should be factored into the liability measurement. The interpretation is effective for the end of fiscal years ending after December 15, 2005, which will be IGT’s fiscal year 2006. We continue to evaluate the impact of FIN 47 on our results of operations, financial position or cash flows.

SFAS 109-1

In December 2004, the FASB issued SFAS 109-1, Applications of SFAS No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities provided by the American Jobs Creation Act of 2004. SFAS 109-1 states that the qualified production activities deduction should be accounted for as a special deduction in accordance with SFAS 109. This statement is effective immediately. The adoption of this statement had no material impact on our results of operations, financial position or cash flows.

SFAS 109-2

In December 2004, the FASB issued SFAS 109-2, Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004. SFAS 109-2 allows enterprises time beyond the financial reporting period of enactment to evaluate the effect of the Act on its plan for reinvestment or repatriation of foreign earnings for purposes of applying SFAS 109. This statement is effective immediately. We anticipate no material impact on our results of operations, financial position or cash flows as a result of adopting this statement.

EITF 04-8

In December 2004, the FASB issued and we adopted EITF 04-8, The Effect of Contingently Convertible Debt on Diluted Earnings per Share, requiring the inclusion of convertible shares in diluted EPS regardless of whether the market price trigger has occurred for all periods presented. We restated the first quarter of fiscal 2004 to reduce diluted EPS from continuing operations by $0.01, related to an additional 20.5 million outstanding debenture shares previously excluded because the conversion event had not occurred. EPS for the nine months ended June 30, 2004 was also recalculated to reflect the additional debentures shares outstanding for the first quarter of fiscal 2004.

SFAS 123R and SAB 107

In December 2004, the FASB issued SFAS 123R (revised 2004), Share-Based Payment, replacing SFAS 123, Accounting for Stock-Based Compensation, and superseding APB 25, Accounting for Stock Issued to Employees. SFAS 123R requires recognition of share-based compensation in the financial statements. SFAS 123R will be effective for the first annual reporting period that begins after June 15, 2005, which will be IGT’s first quarter of fiscal 2006. We continue to evaluate our stock-based compensation policies and currently expect to continue using the Black-Scholes valuation model. We estimate the adoption of FAS123R will reduce earnings consistent with our pro forma disclosures presented in Note 2.

In March 2005, the SEC issued SAB 107, Share-Based Payment, providing interpretive guidance on FAS 123R valuation methods, assumptions used in valuation models, and the interaction of SFAS 123R with existing SEC guidance. The additional SAB 107 requirement for the classification of stock compensation expense to the same financial statement line as cash compensation will impact our cost of product sales and gaming operations, related gross profits and margins, R&D, and SG&A expenses.

SFAS 153

In December 2004, the FASB issued SFAS 153, Exchanges of Nonmonetary Assets, amending APB 29, which treated nonmonetary exchanges of similar productive assets as an exception from fair value measurement. SFAS 153 replaces this exception with a general exception from fair value measurement for exchanges of nonmonetary assets that do not have commercial substance. Nonmonetary exchanges have commercial substance if the future cash flows of an entity are expected to change significantly as a result of the exchange. This statement is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005, which will be IGT’s fourth quarter of fiscal 2005. We anticipate no material impact on our results of operations, financial position or cash flows as a result of adopting this statement.

SFAS 151

In November 2004, the FASB issued SFAS 151, Inventory Costs, amending ARB 43 Chapter 4, Inventory Pricing. SFAS 151 clarifies the accounting for abnormal amounts of idle facility expense, freight and handling costs, and wasted material (spoilage). SFAS 151 introduces the concept of “normal capacity” requiring allocation of fixed production overheads to inventory based upon normal capacity of production facilities. Unallocated overhead costs must be expensed in the period in which they are incurred. This statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005, which will be IGT’s fiscal year 2006. We anticipate no material impact on our results of operations, financial position or cash flows as a result of adopting this statement.

2. Stock Based Compensation

As permitted by SFAS 123, we continue to account for stock based compensation plans in accordance with APB 25 which determines the compensation cost of stock options issued for non-variable plans like ours as the difference between the quoted market value at the measurement date and the amount, if any, required to be paid by employees. Our stock-based compensation plans are predominantly plans where the option price is equal to or greater than the price the stock would be in an offer to all shareholders and therefore, no compensation cost is recorded. We do record stock-based compensation for the intrinsic value of restricted shares issued and when terms of an outstanding option are modified or converted in an acquisition.

The following pro forma financial information reflects the difference between stock compensation costs charged to operations under the APB 25 intrinsic value method and pro forma stock compensation costs that would have been recorded if the SFAS 123 fair value method had been applied to all awards granted, modified, or settled since the beginning of fiscal 1996. The current quarter pro forma stock compensation includes the recapture of previously recognized expense related to unvested options forfeited by certain retiring key executives.

		Quarters Ended								Nine Months Ended
		June 30,								June 30,
		2005				2004				2005				2004
(In thousands, except per share amounts)
Reported net income		$	114,744			$	141,102			$	331,115			$	434,368
Reported stock compensation, net of tax			565				903				1,838				2,580
Pro forma stock compensation, net of tax			(2,933	)			(7,278	)			(17,441	)			(22,399	)
Pro forma net income			112,376				134,727				315,512				414,549
Interest expense on convertible debentures, net of tax			2,394				2,337				7,123				7,007
Pro forma diluted EPS numerator		$	114,770			$	137,064			$	322,635			$	421,556
Basic earnings per share
As reported		$	0.33			$	0.40			$	0.96			$	1.25
Pro forma			0.33				0.39				0.91				1.19
Diluted earnings per share
As reported		$	0.32			$	0.38			$	0.91			$	1.17
Pro forma			0.31				0.36				0.87				1.12

3. Inventories

		June 30,				September 30,
		2005				2004
(In thousands)
Raw materials		$	80,036			$	84,486
Work-in-process			6,568				4,535
Finished goods			93,609				76,580
Total inventories		$	180,213			$	165,601

4. Property, Plant and Equipment

		June 30,				September 30,
		2005				2004
(In thousands)
Land		$	19,979			$	19,979
Buildings			103,469				89,958
Gaming operations equipment			440,265				392,036
Manufacturing machinery and equipment			223,548				206,499
Leasehold improvements			12,138				8,141
Construction-in-process (CIP)			22,273				25,813
Total			821,672				742,426
Less accumulated depreciation and amortization			(466,977	)			(413,368	)
Property, plant and equipment, net		$	354,695			$	329,058

CIP included $19.4 million at June 30, 2005 and $22.1 million at September 30, 2004 related to our new facilities under construction in Las Vegas and Reno. We reclassified $18.8 million of CIP for the Reno expansion to buildings and equipment when it was placed in service during fiscal 2005.

5. Acquisitions, Divestitures and Discontinued Operations

WagerWorks

On July 26, 2005, we entered into a definitive agreement to acquire WagerWorks, Inc. for total cash consideration of approximately $90.0 million, subject to a working capital adjustment. Consummation of the merger, expected in our fourth quarter, is contingent upon customary closing conditions and regulatory approvals. IGT deposited $4.5 million with WagerWorks to be credited against the purchase price at closing. In the event the merger agreement is terminated, IGT would forfeit the deposit unless the decision to terminate is mutual or due to breach or failure by WagerWorks to satisfy certain closing conditions.

WagerWorks is a provider of internet gaming technology, content and services, with a content portfolio and a strict policy of not conducting business with operators who knowingly process gambling transactions from the United States. We expect this business combination will enable us to expand the distribution of IGT game content across new channels and mediums, including internet, mobile devices, and interactive television.

Friendly Matrix

On December 16, 2004, IGT acquired substantially all the assets of Friendly Matrix, including several products that will enhance our IGT Advantage™ systems functionality and extend our reach into key markets. The total purchase consideration of $1.6 million was allocated primarily to developed technology.

Hi-Tech

On December 31, 2004, IGT acquired substantially all of the assets of Hi-Tech, our former distributor of gaming equipment and services in Canada. This asset acquisition is allowing us to further develop our Canadian customer relationships, integrating Hi-Tech’s employees with IGT’s resources. The total purchase consideration of $10.3 million was allocated to accounts receivable, inventories, as well as contract and customer relationship intangibles of $4.6 million.

Acres

On October 27, 2003, we completed the acquisition of Acres, specializing in the development of gaming systems technology designed to assist casino operators in increasing patron loyalty. This business combination enables us to utilize the Acres gaming systems technology to develop more integrated gaming systems products, as well as increases our competitive marketing capacity. The aggregate purchase price of $134.0 million was allocated to net tangible assets of $9.7 million, identifiable intangibles and goodwill of $122.5 million, and in-process R&D of $1.8 million charged immediately to expense.

We have not provided pro forma financial information for these acquisitions, as they were not material to our consolidated results.

Divestitures and Discontinued Operations

Subsequent to the completion of the Anchor acquisition on December 30, 2001, we divested certain acquired operations inconsistent with IGT’s core business strategy. In fiscal 2004, we completed the sale of OES for total cash proceeds of $151.5 million, resulting in a gain of $56.8 million, net of tax.

Nine months ended June 30, 2004
(In thousands)
Net revenue		$	13,558
Income before tax		$	3,416
Provision for income taxes			1,254
Income after tax			2,162
Gain on sale before tax			90,820
Provision for income taxes			34,058
Gain on sale after tax			56,762
Discontinued operations after tax		$	58,924

6. Allowances for Doubtful Notes and Contracts Receivable

		June 30,				September 30,
		2005				2004
(In thousands)
Current		$	24,233			$	23,871
Long-term			18,672				18,507
		$	42,905			$	42,378

7. Concentrations of Credit Risk

The financial instruments that potentially subject us to concentrations of credit risk consist principally of cash or equivalents, short-term investments and receivables. We invest our excess cash in both deposits with major banks throughout the world and other high quality money market instruments. Certain cash balances may be in excess of the Federal Deposit Insurance Corporation insurance limits.

We place short-term investments in high credit quality financial institutions or in short duration high quality securities. With the exception of US Government and Agency securities, our investment policy limits the amount of credit exposure in any one financial institution, industry group or type of instrument.

Our revenues and resulting receivables are concentrated in specific legalized gaming regions. Collection of our receivables may be affected by changes in economic trends or other industry conditions. We perform ongoing credit evaluations of our customers and maintain reserves for potential credit losses. The table below shows the composition of our total net receivables at June 30, 2005.

North America
Nevada			24	%
California			13
New Mexico			5
Louisiana			5
New Jersey			4
Mississippi			4
Canada			4
Other US regions, 3% or less individually			19
Total North America			78	%
International
Europe			11	%
Other international, 3% or less individually			11
Total international			22	%

8. Intangibles and Goodwill

Intangible additions below are comprised of cash expenditures of $18.1 million, $6.0 million of acquisitions in business combinations described in Note 5, and other accruals of $5.9 million. Current quarter additions include $15.4 million for a 50% interest in the SMI portfolio of RFID and optical bet recognition patents. Our patents category also includes capitalized legal costs for patent applications.

						Weighted
						Average
Nine months ended June 30, 2005		Additions				Life (years)
(In thousands, except life)
Finite lived intangibles:
Patents		$	24,023				6
Contracts			3,662				2
Developed technology			1,444				10
Customer relationships			888				2
Total		$	30,017

Intangible Balances

		June 30, 2005												September 30, 2004
		Carrying				Accumulated								Carrying				Accumulated
		Amount				Amortization				Net				Amount				Amortization				Net
(In thousands)
Finite lived intangible assets:
Patents		$	310,722			$	85,112			$	225,610			$	286,733			$	64,825			$	221,908
Contracts			11,712				4,367				7,344				8,094				2,341				5,753
Trademarks			9,822				7,350				2,472				9,828				5,969				3,859
Developed technology			25,662				6,543				19,120				24,218				3,717				20,501
Customer relationships			6,671				1,059				5,612				5,800				160				5,640
Backlog			6,100				6,100				—				6,100				5,592				508
Net carrying amount		$	370,689			$	110,531			$	260,158			$	340,773			$	82,604			$	258,169

Amortization of Intangibles

Our aggregate amortization expense totaled $9.5 million in the current quarter versus $9.2 million in the prior year quarter and $27.9 million in the nine months just ended versus $26.9 million in the prior year period.

		2005				2006				2007				2008				2009
(in millions)
Estimated annual amortization		$	37.4			$	36.0			$	33.0			$	29.8			$	27.9

Goodwill Changes and Balances by Segment

		North America				International
Nine months ended June 30, 2005		Division				Division				Total
(In thousands)
Beginning balance		$	994,686			$	40,903			$	1,035,589
Tax benefit of Anchor options exercised			(413	)			—				(413	)
Foreign currency translation adjustment			—				(150	)			(150	)
Ending balance		$	994,273			$	40,753			$	1,035,026

9. Debt

		June 30,				September 30,
Outstanding Balance		2005				2004
(In thousands)
Senior credit facility – term loan		$	200,000			$	200,000
Senior convertible debentures, net of unamortized discount			599,616				591,848
Senior notes			—				103
Total debt			799,616				791,951
Less current maturities			(599,616	)			(103	)
Notes payable, net of current maturities		$	200,000			$	791,848

We continue to be in compliance with all applicable debt covenants at June 30, 2005.

Senior Credit Facility

The interest rate on the $200.0 million term loan reset to 3.26% on January 18, 2005, 3.75% on April 18, 2005, and 4.21% on July 18, 2005. The reserve for letters of credit against the available $1.3 billion revolver totaled $4.0 million.

Foreign Credit Facilities

Our available foreign credit facilities totaled $52.6 million at June 30, 2005. Renewals occur annually in January and July.

Senior Convertible Debentures

Our convertible debentures were reclassified as current in January 2005 because the debenture holders will have the right to require IGT to redeem the debentures for cash on January 29, 2006. The market price condition for convertibility was not met during the measurement period ended July 19, 2005.

10. Earnings Per Share

The calculation of diluted EPS from continuing operations below reflects our outstanding debenture shares for all periods presented, in conjunction with the adoption of EITF 04-8, The Effect of Contingently Convertible Debt on Diluted Earnings per Share, in our first quarter of fiscal 2005.

From the end of our third quarter just ended through August 11, 2005, we repurchased 2.5 million additional common shares or approximately 1% of outstanding shares. There were no other transactions during this period that would have materially changed the number of basic or diluted shares outstanding.

		Quarters Ended								Nine Months Ended
		June 30,								June 30,
		2005				2004				2005				2004
(In thousands, except per share amounts)
Income from continuing operations		$	114,744			$	141,102			$	331,115			$	375,444
After-tax interest expense on convertible debentures			2,394				2,337				7,123				7,007
Diluted EPS numerator		$	117,138			$	143,439			$	338,238			$	382,451
Weighted average common shares outstanding:
Basic			343,474				348,426				344,828				346,921
Dilutive effect of stock awards			5,274				9,525				6,548				9,652
Dilutive effect of debentures			20,531				20,531				20,531				20,531
Diluted EPS denominator			369,279				378,482				371,907				377,104
Basic earnings per share		$	0.33			$	0.40			$	0.96			$	1.08
Diluted earnings per share		$	0.32			$	0.38			$	0.91			$	1.01
Weighted average antidilutive stock award shares excluded from diluted EPS			10,176				699				8,342				318

11. Income Taxes

Our provision for income taxes is based on estimated effective annual income tax rates. The provision differs from income taxes currently payable because certain items of income and expense are recognized in different periods for financial statement purposes than for tax return purposes.

12. Comprehensive Income

		Quarters Ended								Nine Months Ended
		June 30,								June 30,
		2005				2004				2005				2004
(In thousands)
Net income		$	114,744			$	141,102			$	331,115			$	434,368
Currency translation adjustments			(3,357	)			(29	)			(831	)			5,145
Investment securities unrealized gains (losses)			8				(99	)			(55	)			(6	)
Comprehensive income		$	111,395			$	140,974			$	330,229			$	439,507

13. Commitments and Contingencies

Litigation

IGT has been named in and has brought lawsuits in the normal course of business. We do not expect the outcome of these suits, including the lawsuits described below, to have a material adverse effect on our financial position or results of future operations.

Alliance

On December 7, 2004, IGT filed a complaint in US District Court for the District of Nevada, alleging that defendants Alliance Gaming Corp., Bally Gaming Int’l, Inc., and Bally Gaming, Inc. infringed six US patents held by IGT, US Patent numbers 6,827,646; 5,848,932; 5,788,573; 5,722,891; 6,712,698; and 6,722,985. On January 21, 2005, defendants filed an answer to IGT’s complaint raising various affirmative defenses to IGT’s asserted claims. Defendants also asserted fourteen counterclaims against IGT, including counterclaims for a declaratory judgment of non-infringement, invalidity, unenforceability of the asserted patents, antitrust violations and for intentional interference with prospective business advantage. IGT denies these allegations. In addition, IGT has filed a motion to strike portions of defendants’ answer and affirmative defenses and to dismiss certain of defendants’ counterclaims. Discovery is ongoing.

Environmental Matters

CCSC, a casino operation sold by IGT in April 2003, is located in an area that has been designated by the EPA as a superfund site as a result of contamination from historic mining activity in the area. The EPA is entitled to proceed against current and prior owners and operators of properties located within the site for remediation and response costs associated with their properties and with the entire site. CCSC is located within the drainage basin of North Clear Creek and is therefore subjected to potentially contaminated surface and ground water from upstream mining related sources. Soil and ground water samples on the site indicate that several contaminants exist in concentrations exceeding drinking water standards. We have applied the guidance in Statement of Position 96-1 “Environmental Remediation Liabilities” and determined that a liability has not yet been incurred.

Miller

In June 2003, a class action lawsuit was filed in Clark County, Nevada, District Court against Acres and its directors, entitled Paul Miller v. Acres Gaming Incorporated, et al. The complaint alleged that Acres directors breached their fiduciary duties to their stockholders in connection with the approval of the merger transaction between Acres and IGT and sought to enjoin and/or void the merger agreement among other forms of relief. On September 19, 2003, the Court denied plaintiff’s motion for a TRO to prevent Acres stockholders from voting on the merger. On September 24, 2003, plaintiff petitioned the Nevada Supreme Court to vacate the denial of the TRO and to enjoin Acres from holding its stockholder vote on the merger. The Nevada Supreme Court denied the petition on September 25, 2003. The plaintiff’s action also seeks damages. On December 23, 2003, defendants filed a motion to dismiss plaintiff’s second amended complaint for failure to state a claim on which relief may be granted. On April 29, 2004, the Court issued a ruling denying defendant’s motion to dismiss the second amended complaint. On May 12, 2004 the Court issued an order denying defendants motion to dismiss. Pursuant to stipulation of the parties on August 13, 2004, plaintiff filed a third amended complaint. Defendants have filed a motion to dismiss the third amended complaint. The Court has not yet ruled on this motion.

Nevada Sales/Use Tax Matter

In February 2003, an IGT employee, presently on administrative leave, filed a sealed complaint under Nevada’s False Claims Act (State of Nevada ex rel. James McAndrews v. International Game Technology, Anchor Coin and Spin for Cash Wide Area Progressive) alleging that IGT failed to pay requisite Nevada sales/use taxes on certain Wheel of Fortune® games placed in Nevada since 1997 and in connection with royalties received under intellectual property licensing agreements related to the placement of Action Gaming games in Nevada since 1997.

The Attorney General and IGT both filed motions to dismiss the complaint in January 2004, and the Court unsealed the action in February 2004. The Court denied both motions to dismiss the complaint on July 1, 2004. A Petition for Writ of Mandamus was filed with the Nevada Supreme Court in September 2004. The Court granted the petition. A stay of the lower court proceedings pending action by the Nevada Supreme Court was granted by the trial court in September 2004.

In October 2004 and again in July 2005, NDT advised us that we had a good-faith legal basis for our position that no sales tax was payable on royalties received, but that NDT believed that sales tax may be payable on some amount of the royalties. IGT disagrees with NDT’s position that sales tax may be payable on any part of the royalties and continues to correspond with NDT on this issue.

OSHA Matter

On July 8, 2004, two former employees filed a complaint with the US Department of Labor, OSHA, alleging retaliatory termination in violation of the Sarbanes-Oxley Act of 2002. The former employees allege that they were terminated in retaliation for questioning whether Anchor and its executives failed to properly disclose information allegedly affecting the value of Anchor’s patents in connection with IGT’s acquisition of Anchor in 2001. The former employees also allege that the acquired patents are overvalued on the financial statements of IGT. Outside counsel, retained by an independent committee of the Board of Directors, reviewed the allegations and found them to be entirely without merit.

In the purchase price allocation, IGT used the relief of royalty valuation methodology to estimate the fair value of the patents at $164.4 million, which is being amortized over the useful economic life.

The carrying value of the patents at June 30, 2005 totaled $113.5 million, with a remaining life of approximately 11 years. On November 10, 2004, the employees withdrew their complaint filed with OSHA and filed a notice of intent to file a complaint in federal court. On December 1, 2004, a complaint was filed under seal in the US District Court for Nevada. IGT filed a motion to dismiss the complaint in December 2004. The court denied the motion on May 2, 2005. IGT has appealed this denial to the US Court of Appeals for the Ninth Circuit. IGT believes that the allegations are without merit and intends to vigorously defend this matter.

Poulos

Along with a number of other public gaming corporations, IGT is a defendant in three class action lawsuits: one filed in the US District Court of Nevada, entitled Larry Schreier v. Caesars World, Inc., et al, and two filed in the US District Court of Florida, entitled Poulos v. Caesars World, Inc., et al. and Ahern v. Caesars World, Inc., et al., which have been consolidated into a single action. The Court granted the defendants’ motion to transfer venue of the consolidated action to Las Vegas. The actions allege that the defendants have engaged in fraudulent and misleading conduct by inducing people to play video poker machines and electronic slot machines, based on false beliefs concerning how the machines operate and the extent to which there is an opportunity to win on a given play. The amended complaint alleges that the defendants’ acts constitute violations of the Racketeer Influenced and Corrupt Organizations Act, and also give rise to claims for common law fraud and unjust enrichment, and seeks compensatory, special, incidental and punitive damages of several billion dollars.

In December 1997, the Court denied the motions that would have dismissed the Consolidated Amended Complaint or that would have stayed the action pending Nevada gaming regulatory action. The defendants filed their consolidated answer to the Consolidated Amended Complaint in February 1998. In March 2002, the Court directed that certain merits discovery could proceed. In June 2002, the Court denied the plaintiffs’ motion for class certification. An appeal of that denial was filed timely with the US Court of Appeals for the Ninth Circuit. All briefings were completed and oral arguments were heard in January 2004. On August 10, 2004, a three-judge panel of the Ninth Circuit Court of Appeals upheld US District Court Judge Roger Hunt in his denial of class certification. The class plaintiffs did not appeal the decision and are proceeding with only their individual claims. A jury trial has been set for September 12, 2005.

Siena

In November 2001, Wild Games NG, LLC, owner and operator of the Siena Hotel Spa Casino, filed suit against Acres in Washoe County Nevada District Court. Siena alleged Acres failed to perform obligations under an Equipment Sale Agreement and sought consequential damages largely comprised of lost profits. Acres believes that Siena’s claims are unfounded and not permitted by the Equipment Sales Agreement. Acres filed a counterclaim seeking payments due from Siena.

We have made an accrual to reflect a jury verdict of $1.7 million returned on March 24, 2005 in favor of Siena, along with related interest and legal costs. Acres subsequently filed several post-trial motions that resulted in the verdict amount being affirmed, but costs and fees were reduced. The time for either party to file notice of appeal is thirty days from July 17, 2005.

Arrangements with Off-Balance Sheet Risks

In the normal course of business, we are party to financial instruments with off-balance sheet risk such as performance bonds, guarantees and product warranties not reflected in our balance sheet. We do not expect any material losses to result from these off-balance sheet arrangements, and we are not dependent on off-balance sheet financing arrangements to fund our operations.

Performance Bonds

Performance bonds outstanding related to our gaming operations totaled $4.7 million at June 30, 2005. We are liable to reimburse the bond issuer in the event the bonds are exercised as a result of our nonperformance.

Letters of Credit

Outstanding letters of credit issued under our line of credit to ensure payment to certain vendors and governmental agencies totaled $4.0 million at June 30, 2005.

IGT Licensor Arrangements

Our sales agreements that include software and intellectual property licensing arrangements may provide a clause whereby IGT indemnifies the third party licensee against liability and damages (including legal defense costs) arising from any claims of patent, copyright, trademark or trade secret infringement. Should such a claim occur, we could be required to make payments to the licensee for any liabilities or damages incurred. Historically, we have not incurred any significant costs due to infringement claims. As we consider the likelihood of recurring future costs to be remote, no liability has been recorded.

Product Warranties

We accrue for warranty costs based on historical trends in product failure rates and the expected material and labor costs to provide warranty services. The majority of our products are generally covered by a warranty for periods ranging from 90 days to one year. The following table summarizes the activities related to our product warranty liability.

Nine months ended June 30,		2005				2004
(In thousands)
Balance at beginning of year		$	6,939			$	6,104
Reduction for payments made			(3,611	)			(2,587	)
Accrual for new warranties issued			4,285				3,050
Adjustments for pre-existing warranties			(2,486	)			(361	)
Balance at end of period		$	5,127			$	6,206

Self-Insurance

We are self-insured for various levels of workers’ compensation, directors’ and officers’ liability, electronic errors and omissions liability, as well as employee medical, dental, prescription drug, and disability coverage. We purchase stop loss coverage to protect against unexpected claims. Accrued insurance claims and reserves include estimated settlements for known claims, and actuarial estimates of claims incurred but not reported.

State and Federal Taxes

We are subject to sales, use, income and other tax audits and administrative proceedings in various federal, state, and local jurisdictions. While we believe we have properly reported our tax liabilities in each jurisdiction, we can give no assurance that taxing authorities will not propose adjustments that increase our tax liabilities.

14. Derivatives

We recognize all derivatives as either assets or liabilities at the fair value of the instruments. Accounting for changes in the fair value of derivatives depends on the intended use and resulting designation. We use derivative financial instruments to minimize our market risk exposure resulting from fluctuations in foreign exchange rates and interest rates. The primary business objective of our hedging program, as defined in our corporate risk management policy, is to minimize the impact of transaction, remeasurement, and specified economic exposures to our net income and earnings per share. The counterparties to these instruments are major commercial banks and we believe that losses related to credit risk are remote. We are not party to leveraged derivatives and do not hold or issue financial instruments for speculative purposes.

Foreign Currency Hedging

We routinely use derivative financial instruments to hedge our net exposure, by currency, related to our monetary assets and liabilities denominated in nonfunctional foreign currency. Fluctuations in the value of these derivative instruments are generally offset by the value of underlying exposures. Our forward currency contracts are not designated FAS 133 hedging instruments and resulting gains or losses are recognized in current earnings. At June 30, 2005, we hedged $49.1 million of net foreign currency exposure with $37.3 million in forward currency contracts compared to $53.1 million of exposure hedged with $43.8 million in forward contracts at September 30, 2004.

Interest Rate Management

In the fourth quarter of fiscal 2003, we entered into four interest rate swap agreements with a combined notional amount of $350.0 million, primarily to diversify a portion of our debt portfolio between fixed and variable rate instruments. These swaps were cancelled on July 9, 2004 in conjunction with the early redemption of our 2009 senior notes on July 16, 2004.

Under the terms of the interest rate swaps, we made payments based on a specific spread over six-month LIBOR and received payments equal to the interest rate on our fixed rate senior notes. These interest rate swaps were fair value hedges, which qualified for the shortcut method of accounting under SFAS 133, allowing for an assumption of no ineffectiveness in the hedging relationship. Accordingly, we recorded the change in the fair value of the swap instruments as non-current assets or liabilities with an offsetting adjustment to the carrying value of the related debt.

Debentures Yield Adjustment

The yield adjustment feature of our debentures requires contingent cash interest payments that are triggered by our stock price and is considered a FAS 133 embedded derivative requiring bifurcation. However, since IGT could exercise its redemption right in anticipation of an upward adjustment, we expect that an investor would attribute no economic value to this feature. Accordingly, we have ascribed no value and recorded no derivative asset or liability for this embedded derivative.

15. Business Segments

We currently view our business in two regional operating segments, each incorporating all relevant revenues from product sales and gaming operations:

ª		The North America Division aggregates our operations in the US and Canada, including the IGT Systems Group

ª		The International Division aggregates our operations in Asia, Australia, New Zealand, Europe, Japan, Latin America, South Africa, and the UK

Our business segments are designed to allocate resources within a framework of management responsibility. Operating costs from one segment may benefit another segment. We continually evaluate the alignment of our business development and sales organizations for reporting purposes, which may result in changes to segment allocations. Prior year amounts have been reclassified to conform to the current management view and presentation.

The Corporate Division manages certain unallocated income and expenses related to company-wide initiatives, including capital deployment, treasury and cash management, as well as administrative and oversight functions such as human resources, information systems, and legal counsel. The Corporate Division includes all income and expenses related to debt, certain investment securities, hedging and other corporate assets.

On a consolidated basis we do not recognize inter-company revenues or expenses upon the transfer of gaming products between divisions. IGT’s segment profit reflects income from continuing operations before tax.

		Quarters Ended								Nine Months Ended
		June 30,								June 30,
		2005				2004				2005				2004
(In thousands)
North America Division
Revenues		$	480,740			$	541,862			$	1,420,083			$	1,597,781
Product sales			182,590				243,093				548,577				755,665
Gaming operations			298,150				298,769				871,506				842,116
Inter-company revenues			47,960				21,775				110,477				83,765
Segment profit			187,873				230,402				517,580				653,925
International Division
Revenues		$	98,816			$	77,025			$	351,683			$	265,251
Product sales			91,862				72,489				332,301				252,754
Gaming operations			6,954				4,536				19,382				12,497
Inter-company revenues			92				772				436				1,277
Segment profit			23,543				17,759				82,522				67,243
Corporate Division
Segment loss		$	(31,421	)		$	(45,102	)		$	(82,645	)		$	(146,138	)
Consolidated
Revenues		$	579,556			$	618,887			$	1,771,766			$	1,863,032
Product sales			274,452				315,582				880,878				1,008,419
Gaming operations			305,104				303,305				890,888				854,613
Inter-company revenues			48,052				22,547				110,913				85,042
Segment profit			179,995				203,059				517,457				575,030

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following MDA is intended to enhance the reader’s understanding of changes in the financial condition and results of operations of International Game Technology. It should be read in conjunction with our Annual Report on Form 10-K for the year ended September 30, 2004. Throughout this section, table amounts are presented in millions, except units, ASP, ARPU and EPS, and may not foot due to rounding.

Italicized text with an attached superscript trademark or copyright notation in this document indicates trademarks of IGT or its licensors. For a complete list of trademark and copyright ownership information, please visit our website at www.IGT.com.

Our MDA is organized into the following sections:

ª		OUR BUSINESS — a general description of our business and operating segments

ª		OUR FOCUS — a summary of our strategies and opportunities

ª		CONSOLIDATED OPERATING RESULTS — a year-over-year comparative analysis of income from continuing operations      for the third quarter and nine months of fiscal 2005

ª		BUSINESS SEGMENT RESULTS — a year-over-year comparative analysis of business segment results for the third      quarter and nine months of fiscal 2005

ª		LIQUIDITY AND CAPITAL RESOURCES — a year-over-year comparative analysis of cash flows and capital resources      for the first nine months of fiscal 2005

ª		FINANCIAL CONDITION –- analysis of significant changes in our financial position

ª		CRITICAL ACCOUNTING ESTIMATES — a discussion of accounting policies that require critical judgments and estimates

ª		RECENTLY ISSUED ACCOUNTING STANDARDS — a discussion of recently issued accounting standards with      significance to our business

ª		FORWARD LOOKING STATEMENTS AND RISK FACTORS — cautionary information about forward looking statements      and a description of certain risks and uncertainties associated with our business

OUR BUSINESS

International Game Technology is a global company specializing in the design, development, manufacturing, distribution and sales of computerized gaming machines and systems products. We strive to maintain a diverse portfolio of gaming products that span a wide range of categories and target customer markets with a variety of games, platforms and systems offered across gaming jurisdictions worldwide.

We had annual revenues of $2.5 billion in fiscal 2004. We derive our revenues in two ways, either from sales of our products (product sales) or from recurring revenues from the use of our products, services and/or intellectual property (gaming operations). We currently view our business in two regional operating segments:

ª		North America, encompassing the US and Canada

ª		International, with offices in Asia, Australia, New Zealand, Europe, Russia, Latin America, South Africa, the UK and Japan

Additionally, our Corporate Division administers certain unallocated income and expenses related to company-wide initiatives. See the BUSINESS SEGMENT RESULTS below and Note 15 of our Unaudited Condensed Consolidated Financial Statements for additional segment information and financial results.

OUR FOCUS

Product Demand

Demand for our products is driven principally by:

ª		technological innovations that create new, more sophisticated games and/or customer cost savings

ª		new or expanding gaming properties

ª		establishment or expansion of legalized gaming jurisdictions