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International Game Technology Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: August 13, 2009 02:23PM
International Game Technology (IGT) filed Quarterly Report for the period ended 2009-06-30. 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 $5.67 billion; its shares were traded at around $19.13 with a P/E ratio of 20.4 and P/S ratio of 2.2. The dividend yield of International Game Technology stocks is 1.2%. 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, we have been conducting an ongoing 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. Through July 2009, we have reduced our global workforce by approximately 15% from September 30, 2008 levels, through a combination of voluntary and involuntary separation arrangements. Restructuring charges of $29.8 million incurred through June 30, 2009 included severance and one-time termination costs reduced by stock compensation forfeitures. We also expect to incur additional charges in the fourth quarter of between $2.0 million and $3.0 million.
In May 2008, the FASB issued FSP APB 14-1, Accounting For Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement). This FSP requires that convertible debt instruments that may be settled in cash upon conversion be separated into debt and equity components, with retrospective restatement of all periods presented after adoption. We will adopt FSP APB 14-1 in the first quarter of our fiscal 2010 and estimate it will increase quarterly interest expense between $6.0 million and $10.0 million and reduce quarterly diluted EPS between $0.01 and $0.02 related to our Debentures and Notes for fiscal years 2009 and 2010. See Note 11 of our Unaudited Condensed Consolidated Financial Statements for additional information about our Debentures and Notes.
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 ranged from $6.8 billion for North America to $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 range from approximately $3.0 billion for North America to $1.2 billion for International, and we would therefore have no impairment.
Our jackpot liabilities decreased to $599.7 million at June 30, 2009 compared to $650.7 million at September 30, 2008. Consolidated jackpot expense totaled $99.7 million for the first nine months of fiscal 2009 and $125.5 million in the comparable prior year period. The decline in jackpot expense in the current nine months compared to the prior year period resulted from decreased units, lower play levels, variations in slot play, and favorable interest rate movements.
At June 30, 2009 our deferred tax assets included $11.6 million, reflecting the benefit of $32.9 million in foreign loss carryforwards, which expire in varying amounts between 2015 and 2016. Realization is dependent on generating sufficient taxable income, in the specific foreign jurisdiction, prior to the expiration of the loss carryforwards. Although realization is not assured, we believe it is more likely than not that all of the deferred tax asset will be realized. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if future taxable income during the carryforward period is less than estimated.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.
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