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International Game Technology Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: May 14, 2009 04:05PM
International Game Technology (IGT) filed Quarterly Report for the period ended 2009-03-31. International Game Technology is one of the largest manufacturers of computerized casino gaming products and operators of proprietary gaming systems in the world and was the first to develop computerized video gaming machines. International Game Technology has a market cap of $3.91 billion; its shares were traded at around $13.22 with a P/E ratio of 12.5 and P/S ratio of 1.5. The dividend yield of International Game Technology stocks is 1.8%. International Game Technology had an annual average earning growth of 18.3% over the past 10 years. GuruFocus rated International Game Technology the business predictability rank of 2-star.
Highlight of Business Operations:
In response to reduced demand, in November 2008, we reduced our global workforce by approximately 450 employees in phase I of our ongoing plans to achieve greater operational efficiencies and control expenses. In January 2009, we initiated a phase II plan to better align our supply chain capacity and resources with our strategic objectives, which reduced approximately 250 manufacturing-related positions by early April 2009. Collectively, these fiscal 2009 expense control initiatives have achieved a 12% reduction in our global workforce. Through March 31, 2009, we incurred $25.7 million of restructuring charges and reached our goal to reduce quarterly operating costs by $20.0 to $25.0 million from the fourth quarter of fiscal 2008. We will continue to conduct a company-wide strategic review of our costs and organizational structure for further opportunities to maximize efficiency and align our expenses with our current and long-term business outlook.
Our goodwill totaled $1.1 billion at March 31, 2009 and $1.2 billion at September 30, 2008. Our fiscal 2008 annual goodwill impairment test indicated the fair value of each reporting unit was significantly in excess of its carrying value. Inherent in such fair value determinations are significant judgments and estimates, including assumptions about our future revenues, profitability, cash flows, and long-term growth rates, as well as our operational plans and interpretation of current economic indictors and market valuations.
Changes in our assumptions used from the fiscal 2007 test to the fiscal 2008 test included updated five-year forecasts with reduced and delayed growth, lower long-term growth rates, and a higher discount rate for North America. The changes in the fair value for each reporting unit ranged from a decrease of 48% for North America to an increase of 32% for International. The excess of fair value over carrying value for each reporting unit at the 2008 testing date was $6.8 billion for North America and $2.9 billion for International.
If our assumptions do not prove correct or economic conditions affecting future operations change, our goodwill could become impaired and result in a material adverse effect on our results of operations and financial position. To illustrate the sensitivity of the fair value calculations on our goodwill impairment test, we modified our 2008 test assumptions to create a hypothetical 50% decrease to the fair values of each reporting unit. The resulting hypothetical excess of fair value over carrying value would be approximately $3.0 billion for North America and $1.2 billion for International, and we would therefore have no impairment.
Our portfolio of other intangibles substantially consists of finite-lived patents, contracts, trademarks, developed technology, and customer relationships. We regularly monitor events or changes in circumstances that indicate the carrying value of these intangibles may not be recoverable or require a revision to the estimated remaining useful life in accordance with SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Our other intangibles totaled $242.2 million at March 31, 2009 and $248.9 million at September 30, 2008.
Our jackpot liabilities decreased to $632.2 million at March 31, 2009 compared to $650.7 million at September 30, 2008. Jackpot expense totaled $72.4 million for the six months of fiscal 2009, and $89.0 million in the comparable prior year period. The decline in jackpot expense in the current six months period compared to the prior year resulted from decreased volume and lower variations in slot play, partially offset by unfavorable interest rate movements.Bruce Sherman of Private Capital Management, John Rogers of ARIEL CAPITAL MANAGEMENT LLC, Tom Gayner of Markel Gayner Asset Management Corp, Richard Aster Jr of Meridian Fund.
Stocks Discussed: IGT,