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Howard Stutz

Consolidation of suppliers urged

21 August 2008

LAS VEGAS, Nevada -- Bally Technologies ended its fiscal year with a 380 percent increase in profits and a 32 percent increase in total revenues -- in other words, the perfect time to consolidate operations with another rival slot machine company, said analysts for one Wall Street investment firm.

Before the Bally's release of fourth quarter and year-end earnings Wednesday, Macquarie Equities put out a collaborative investors note between New York-based Joel Simkins and Australia-based Steve Wheen. The analysts said they saw strong synergy between a combined Bally Technologies and Aristocrat Technologies, Australia's leading slot machine maker.

"We have long believed that the gaming suppliers should further consolidate, just as operators have done over the last decade," the analysts wrote. "In our view, the most logical pairing in the group would be Bally and Aristocrat."

Simkins and Wheen said the companies could combine slot machine products and gaming management systems. A merger would allow the slot makers to reduce overhead and leverage intellectual property.

Bally's Technologies Chief Executive Officer Richard Haddrill said following the company's quarterly earnings conference call that he was aware of Wall Street speculation about consolidation. Rumors have popped up off and over the last two years. However, nothing is brewing now.

"We're always open to strategic acquisitions, but clearly, our No. 1 focus is taking care of our customers," Haddrill said.

Las Vegas-based Bally, which ended a nearly two-year earnings restatement process last year and became current on its quarterly financial filings in February, said its net income in the fourth quarter ended June 30 was $31.3 million, or 54 cents a share. The profits were up from $18.5 million or 33 cents a share in the same quarter of 2007.

Analysts polled by Thomson Financial expected the company to earn 53 cents a share.

Bally Technologies total revenues were $247.4 million in the quarter, up 22.2 percent from $202.4 million a year earlier.

For the year, Bally Technologies had a net income of $107.2 million, or $1.85 a share, compared with $22.3 million, or 40 cents a share in 2007.

Twelve-month revenue rose 31.9 percent to $899.7 million from $682.3 million.

"The steady increase in our gaming operations install base and our growing foundation of systems customers continues to drive our recurring revenues," Haddrill said. "We are executing very well on innovation and delivery across all product lines."

The company announced earnings after stock markets closed Wednesday. Shares of Bally Technologies had closed at $31.33 on the New York Stock Exchange, down 51 cents or 1.6 percent. In trading after hours, the company's shares rose by 6.64 percent to $33.41 at 6:30 p.m. PDT.

Bally said it sold 7,360 slot machines in the fourth quarter, compared with 7,241 a year ago, and 26,397 games for all of 2008, compared with 21,372 in 2007.

Bally Chief Operating Officer Gavin Isaacs said a strong product base has been well-received in American and foreign gaming markets.