International Game Technology Reports Third Quarter Fiscal Year 2005 results
biz.yahoo.com
Thursday July 21, 7:30 am ET
RENO, Nev., July 21 /PRNewswire-FirstCall/ -- International Game Technology (NYSE: IGT) today reported its operating results for the third quarter ended June 30, 2005.
Third quarter net income totaled $114.7 million or $0.32 per diluted share, compared to $141.1 million or $0.38 in the prior year.
For the nine months ended June 30, 2005, income from continuing operations and net income totaled $331.1 million or $0.91 per diluted share compared to income from continuing operations of $375.4 million or $1.01 per diluted share in the prior year. In the prior year, net income of $434.4 million or $1.17 per diluted share included income from discontinued operations of $58.9 million or $0.16 per diluted share, comprised of an after-tax gain of $56.8 million related to the sale of IGT OnLine Entertainment Systems (OES).
"Despite the challenging domestic environment in which we operate, we continue to execute well, both operationally and strategically," said IGT Chairman and CEO TJ Matthews. "Our international operations are poised to deliver another record-breaking year in terms of both revenues and operating income. Domestically, we have received favorable market response to our recently introduced and Party Time(TM) product, demand has remained strong for Star Wars(TM), Fort Knox(TM) and video Megabucks®. Our 5-line physical reel slots continue to perform extremely well. During the quarter, we entered the Washington state market with our central determination systems and games, and our server-based gaming initiatives continue to progress. The recently announced alliance with Progressive Gaming International and Shuffle Master will further enable us to extend our product offerings into the table games area of the casino."
Gaming Operations
Third quarter revenues and gross profit from gaming operations totaled $305.1 million and $164.5 million, respectively, compared to $303.3 million and $166.5 million in the prior year. Gross profit margins for gaming operations were 54% versus 55% in the prior year quarter primarily due to interest rate fluctuations.
Gaming operations revenues year-to-date totaled $890.9 million, an increase of 4% from $854.6 million in the prior year. Gross profit margins for gaming operations were 52% compared to prior year margins of 55%. The decline in the current year-to-date gaming operations gross profit margin was primarily the result of technical obsolescence charges recognized in the second quarter, as well as the consolidation of our variable interest entities that commenced in the third quarter of the prior year.
IGT's installed base of recurring revenue machines ended the quarter at 38,500 units, an increase of 2,100 units from the same quarter last year and an increase of 600 units from the immediately preceding quarter. The year-over-year growth was driven by additional placements in the video lottery markets of New York, Delaware and Rhode Island, the Native American markets in Florida, Oklahoma and Washington, and the charitable video bingo market of Alabama. Many of these same markets also provided sequential growth in the installed base.
Product Sales
IGT Product Sales Summary
Quarters Ended Nine Months Ended
June 30, June 30,
2005 2004 2005 2004
Revenues (in millions)
North America $182.6 $243.1 $548.6 $755.7
International 91.9 72.5 332.3 252.8
Total $274.5 $315.6 $880.9 $1,008.4
Gross Margin
North America 55% 56% 54% 55%
International 48% 49% 42% 46%
Total 52% 54% 49% 53%
Units Shipped
North America 12,300 22,500 40,300 72,300
International 11,800 12,600 61,700 54,300
Total 24,100 35,100 102,000 126,600
Average Revenue
Per Unit (ARPU)
North America $14,800 $10,800 $13,600 $10,500
International 7,800 5,700 5,400 4,700
Total 11,400 9,000 8,600 8,000
Worldwide product sales revenues and gross profits totaled $274.5 million and $143.7 million, respectively, in the third quarter compared to $315.6 million and $171.8 million in the prior year. Consolidated gross margins in the current quarter were 52% versus 54% in the prior year, primarily due to a larger mix of international sales and the allocation of fixed costs across lower domestic sales volumes. Stronger worldwide pricing and an increase in non-machine related revenues, such as systems sales and game theme conversions, grew average revenues per unit and helped maintain margins despite lower domestic sales volumes.
International product sales revenues were $91.9 million in the third quarter, an increase of 27% from $72.5 million last year. Higher international revenues were primarily driven by a more favorable international product sales mix that included machine replacement sales and systems revenue in Latin America, as well as improved premium product sales in Australia. Average revenue per unit increased 36% over the prior year primarily due to the growth of international systems and other non-machine related revenues. Gross profit margins on products sales were 48%, slightly lower than prior year margins of 49%. Growth in non-machine revenues offset lower sales volumes.
North America product sales revenues for the third quarter totaled $182.6 million compared to $243.1 million in the prior year, primarily due to the slow down in TITO-related demand for replacement machines and fewer new market opportunities. Despite lower domestic sales volumes, the average revenue per unit increased 37% as the result of stronger pricing realization and a greater mix of non-machine revenues, primarily systems sales and game theme conversions.
Worldwide product sales revenues and gross profit for the nine-month period ended June 30, 2005 totaled $880.9 million and $435.2 million, respectively, compared to $1.0 billion and $529.8 million in the prior year. Revenues were down primarily as a result of lower domestic replacement volumes. Consolidated product sales gross margins were 49% versus 53% in the prior year, primarily due to the growth in pachisuro machine sales in Japan during the current year that drove higher revenues, but reduced gross margin results.
Operating Expenses and Other Income/Expense
Total operating expenses were $140.8 million for the quarter and $391.6 million year-to-date compared to $127.2 million and $379.1 million, respectively, in the same prior-year periods. Selling, general and administrative costs increased primarily as a result of higher legal and compliance fees and additional severance costs. R&D also increased as we continued to make additional investments to support our industry-leading research and development efforts. Bad debt expense was lower in the current year due to a more favorable risk profile on our outstanding receivables and lower receivable balances.
Other income, net, totaled $12.6 million for the quarter and $14.2 million year-to-date compared to a net expense of $8.0 million and $44.3 million in the same prior-year periods. The favorable shift was primarily the result of reduced interest expense related to the redemption of senior notes outstanding in the prior-year period. Additionally, interest income in the current quarter included $10.2 million pretax in financing fees realized on early loan repayments. The third quarter of the prior year included a reduction to the provision for income taxes of $10.3 million or $0.03 per diluted share related to the utilization of foreign income tax credits.
Cash Flows & Balance Sheet
During the nine months ended June 30, 2005, we generated $562.3 million in cash flows provided by operating activities on net income of $331.1 million. Working capital was $477.4 million at June 30, 2005 compared to $949.7 million at September 30, 2004. The change in working capital was primarily the result of the reclassification of our convertible debentures to current liabilities in the second quarter of fiscal 2005.
Cash and equivalents with short-term investments (inclusive of restricted amounts) totaled $922.9 million at June 30, 2005 compared to $766.6 million at September 30, 2004. Debt totaled $799.6 million at June 30, 2005 compared to $792.0 million at September 30, 2004.
Restricted cash totaling $60.1 million at June 30, 2005 and $86.5 million at September 30, 2004 has been presented as a separate asset on our balance sheets. Restricted cash is comprised of reserves required to maintain in restricted accounts for the purpose of funding payments to progressive systems jackpot winners. Our statements of cash flows reflect the net change in restricted cash as a component of investing cash flows rather than as a component of net change in cash as presented previously. This reclassification had no impact on operating cash flows.
Capital expenditures totaled $166.2 million year-to-date compared to $141.3 million in the prior year. The increase was primarily related to additional investments in gaming operations equipment and construction costs for our Reno facility expansion and Las Vegas campus development totaling $16.1 million.
Capital Deployment
On June 23, 2005, our Board of Directors declared a quarterly cash dividend of $0.12 per share payable on July 21, 2005 to shareholders of record on July 7, 2005. We have returned $124.6 million year-to-date to shareholders in the form of dividends.
During the third quarter, we repurchased 3.8 million shares of our common stock for an aggregate cost of $103.0 million. Year-to-date, we have repurchased 7.1 million shares for an aggregate cost of $200.0 million. The remaining authorization under IGT's stock repurchase program totaled 28.8 million shares at June 30, 2005. |
