International Game Technology ( IGT) announced a record third quarter as one of the nation's leading slot machine makers continues to profit off of the rapid expansion of gambling.

IGT reported net income of $141.1 million, or 38 cents a share, up from $103.7 million, or 30 cents a share, in the year-ago quarter.

On an adjusted basis, excluding a $10.3 million tax credit, the company had earnings of $130.8 million, or 35 cents a share, which tops the 33-cent consensus estimate and is a 21% increase from the year-ago $99.9 million, or 29 cents a share.

Revenue came in at $618.9 million, up 10% year over year and better than the $607.8 million expected by analysts. Gross profit margins and the popularity of IGT's slot machines helped drive revenue, with margins coming in at 55%, up from 52% a year ago. The company ended the quarter with a record 36,400 machines in service, up 2,800 from last year at this time.

"We are very pleased with our quarterly and nine-month results," said TJ Matthews, IGT's CEO. "Our industry-leading game content and gaming machine platforms resulted in record operating income during the quarter on the strength of record top-line revenue in our gaming operations segment."

In addition to the earnings release, IGT also responded to complaints filed on July 8 by two former employees who say the company wrongfully terminated them. The two former employees allege that patents acquired when IGT bought Anchor Gaming in 2001 are overvalued on IGT's balance sheet.

"These allegations are baseless," the company said in a statement. "Outside legal counsel, retained by an independent committee of the board of directors, has thoroughly reviewed the facts and found these claims to be entirely without merit. IGT believes that these allegations are nothing more than a self-serving effort on the part of the former employees to extract personal financial gain."

In the third quarter IGT sold 35,100 machines, down from 37,500 a year ago, but with margins expanding, sales revenue came in at $315.6 million, up 5% year over year. Gross profit margins on product sales came in at 54%, up from 48% a year ago, with gross profits from sales rising 20%.

Costs came in at $127.2 million, up 20.6% from the year-ago $105.5 million, due primarily to the company's acquisition of Acres Gaming at the end of 2003 and additional research and development expenses.

In the first nine months of the fiscal year, IGT said it generated $400.5 million in cash flow and plans to disperse some of that cash to investors in the form of a 10-cent per-share quarterly dividend that was first announced on June 16. The board said it intends to review that dividend at its shareholders meeting in September.