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International Game Technology reports 2011 third quarter results
International Game Technology today reported operating results for the fiscal third quarter ended June 30, 2011. GAAP income from continuing operations for the quarter was$92 million, or $0.30 per share, compared to $96 million, or $0.32 per share, in the same quarter last year. This quarter's results include a $0.04 per share benefit from certain discrete tax items. The prior year's quarter benefited from certain discrete tax items of $0.12 per share, offset by debt refinancing costs of $0.01 per share. Adjusted income from continuing operations for the quarter improved to $78 million, or $0.26 per share, compared to $64 million, or $0.21 per share, in the same quarter last year.
For the nine months ended June 30, 2011, GAAP income from continuing operations grew to $232 million, or $0.77 per share, compared to $197 million, or $0.66 per share, for the same period last year. The current nine-month period was impacted favourably by $0.08 per share from certain discrete tax benefits and a gain on the sale of IGT's equity investment in China LotSynergy Holdings Ltd. Adjusted income from continuing operations for the first nine months improved to $207 million, or $0.69 per share, for fiscal 2011 compared to $197 million or $0.66 per share for fiscal 2010. Adjusted income from continuing operations is a non-GAAP measure and a supplemental GAAP to non-GAAP reconciliation is provided at the end of this release.
"Our third quarter results further demonstrate the positive momentum generated by our new games, platforms and internal process improvements," said Patti Hart, CEO of IGT. "We are expanding our business in new and existing markets around the world in a capital-efficient manner driven by our customer-first philosophy. The investments we are making today are expected to position the company to deliver continued revenue and earnings growth."
Consolidated Operations
Total revenues for the third quarter increased 3% to $489 million, of which 55% was generated from gaming operations and 45% from product sales, compared to $475 million for the same quarter last year.
Consolidated gross profit for the quarter increased 8% to $289 million compared to $268 million in the prior year's third quarter, due to improved product sales volume.
Operating income for the third quarter was $141 million, an increase of 17%, compared to $120 million in last year's third quarter, due to higher revenues, lower cost of sales and flat operating expenses.
For the nine months ended June 30, 2011, total revenues decreased 2% to $1.42 billion, gross profit improved 2% to $841 million and operating income increased 19% to $389 million.
Gaming Operations
Third quarter revenues from gaming operations totaled $267 million compared to $269 million for the same quarter last year.Average revenue per unit per day in the third quarter was $55.55, up $1.47 over the prior year's quarter on performance improvements in our MegaJackpots® brands globally, and down $0.83 from the immediately preceding quarter due to a higher mix of lower-yielding international units.
Gaming operations gross profit improved to $165 million and gross margin to 62% in the third quarter compared to $156 million and 58%, respectively, in the prior year's quarter. Margins for this year's quarter were impacted positively by improved game performance and lower jackpot expenses.
At June 30, 2011, IGT's gaming operations installed base totaled 53,300 units, an increase of 800 units from the immediately preceding quarter primarily due to additions in international lease operations.
Product Sales
Third quarter product sales revenues were $222 million, up 8% from $206 million a year ago. Globally, the company recognized 8,900 units in the quarter, up 7% from last year's third quarter, primarily due to increases in domestic replacement and Latin America sales and down 2% sequentially, primarily due to fewer new openings domestically. The company recognized 9% and 5% more units in North America and International, respectively, year over year for the third quarter. Domestic average selling prices increased 2% compared to last year's third quarter due to a higher percentage of new cabinets, specifically, the Universal Slant and G23 MLD products. International average selling prices increased 16% compared to last year's third quarter primarily due to favourable geographical and product mix, particularly in Europe and Australia, and favourable foreign exchange rates.
Product sales gross profit in the third quarter increased 10% to $124 million and gross margin improved 100 bps to 56% compared to last year's third quarter. The increase in gross margin was driven by increased higher-margin international machine sales.
Operating Expenses and Other Income/Expense
Third quarter operating expenses of $148 million were essentially flat compared to the prior year third quarter. SG&A totaled 17% of revenues, and was also flat compared to last year's third quarter, as lower bad debt provisions offset higher variable compensation expenses.
Other expense, net, in the third quarter decreased to $19 million compared to $24 million in the prior year's quarter, primarily due to lower interest expense on reduced borrowings.
Cash Flows, Balance Sheet and Capital Deployment
For the first nine months of fiscal 2011, IGT generated$449 million in cash from operations compared to $424 million in the prior year period.
Working capital increased to $781 million at June 30, 2011 compared to $620 million at September 30, 2010.Cash equivalents and short-term investments (inclusive of restricted amounts) totaled $401 million and contractual debt obligations totaled $1.65 billion at June 30, 2011. As of June 30, 2011, there were no outstanding borrowings under the company's domestic credit facility.
As previously announced on June 8, 2011, the Company's Board of Directors authorized a share repurchase program of up to $500 million of the Company's outstanding common stock. During the quarter, the Company repurchased 1.5 million shares of common stock at an average price of $16.25 per share for a total cost of $25 million.
References to per share amounts in this release are based on diluted shares of our common stock, unless otherwise specified.
Other
During the quarter, the company closed on the previously announced tender offer to acquire Entraction Holding AB. This transaction is consistent with IGT's focus of growing online gaming within the growing interactive gaming space in legalized jurisdictions. The acquisition is expected to significantly enhance IGT's online gaming portfolio by adding poker, sports betting and bingo offerings. The transaction was funded from available cash on IGT's balance sheet.
Also during the quarter, IGT entered into a definitive agreement to sell the Barcrest Group to Scientific Games (NASDAQ: SGMS). This transaction is expected to close during our fiscal 2011 fourth quarter, subject to U.K. competition approvals and certain other customary closing conditions. The Barcrest results of operations were classified in discontinued operations for all periods presented, and the balance sheet for June 30, 2011 reflects Barcrest assets and liabilities in discontinued operations at fair value.
Outlook
Based on current expectations and the operating results for the first nine months of fiscal 2011, the company is raising its fiscal year 2011 guidance for adjusted earnings from continuing operations to a range of $0.89 to $0.93 per share. This range excludes the favorable impact of $0.08 per share from certain items detailed in the supplemental reconciliation at the end of this release.
Source: IGT
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