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Howard Stutz

IGT's profit jumps 7 percent

23 April 2010

LAS VEGAS, Nevada -- International Game Technology would have reported net profits for the second quarter that would have shocked Wall Street -- if only you subtract restructuring charges and the costs to close its Japanese operations.

Instead, the Reno-based slot machine giant had to settle for a 7 percent increase in net income and a nearly 5 percent jump in quarterly revenues.

For the quarter that ended March 31, IGT on Thursday reported net income of $35.9 million, or 12 cents per share. For the same quarter a year ago, the company reported net income of $33.6 million, or 11 cents per share.

The quarter was affected by restructuring charges of $16.1 million and a write-down of $1.9 million for obsolete equipment. The $18 million charges cost 6 cents per share.

Add in the costs of almost $7 million to close the Japan facilities, and the second quarter would have shown net income of $60.6 million, or 20 cents per share.

Analysts polled by Thomson Reuters, who normally exclude one-time items, expected IGT to earn 20 cents per share in the quarter.

The company said it benefited from casinos that decided to replace aging slot machines with new games.

IGT said its revenues in the quarter were $497.7 million, up from $475.7 million in the same quarter last year. IGT said it generated 57 percent of its revenues from operations where it shares in the slot machine revenues with customers. The other 43 percent of the company's revenues, $213.1 million, came from product sales.

"An improvement in replacement units shipped, an increase in gaming operations yields and a decline in (costs) all reflect IGT's continued efforts to navigate our business through an operating environment which remains challenging," IGT Chief Executive Officer Patti Hart said in a statement.

Macquarie Securities gaming analyst Joel Simkins said a pre-earnings announcement this month by gaming equipment rival Bally Technologies dampened expectations toward slot machines sales. IGT sold approximately 5,200 machines in the quarter, down from 5,400 a year ago.

"We view (quarterly results) as a net positive, as there has been significant concern in the investment community that results would be challenging," Simkins said.

Roth Capital Markets gaming analyst Todd Eilers said IGT probably benefited from large casino openings in St. Louis and Oklahoma. Combined, the two casinos total 5,000 slot machines from all manufacturers.

"IGT typically gets a larger market share of new openings than on replacement sales," Eilers said.

Simkins said he has a positive view of IGT as an investment because Hart "is steering the company toward a renewed focus on content development and product innovation while being more attuned to the interests of its customers."
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