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Blow Out' Quarter for World

23 April 2003

By Rod Smith

RENO, Nevada -- Reno-based International Game Technology, the world's largest slot machine maker, Tuesday reported net income of $87.1 million for the first quarter of 2003, up from $73.9 million the year before.

"This, in my view, is by far the leading company in the entire gaming industry and it has the best growth prospects in our coverage universe," said Deutsche Bank analyst Marc Falcone.

Net income per share was $1.02, up from 83 cents in the year earlier quarter, and total quarterly revenues were $567.6 million, up from $496 million in 2002.

For the six months ended March 31 net income was $178,701, up from $125,690 in the same period a year earlier.

Net income per share for the just ended six-month period was $2.07, up from $1.55, on total sales of $1.1 million, up from $797,508 the year before.

IGT Chief Executive Officer Tom Baker said in a conference call with analysts that technology is the key to the company's growth.

"Our EZ Pay technology continues to gain even broader acceptance with our customers and slot players alike," he said.

During the conference call, Baker announced agreement was reached Tuesday to sell Station Casinos up to 8,000 additional EZ Play slot machines over the next three years for its existing casino locations, as well as the new Thunder Valley Casino in Northern California.

Falcone called the quarter a "blowout" for IGT.

"Product sales revenues climbed to a monster $255 million, up 23 percent year-over-year," he said.

"Margins increased a substantial 520 (basis points) to 48.2 percent," Falcone said.

Domestic product sales drove the quarterly results with 19,800 slot machines sold, compared with previous projections of 17,600 units, he said.

Participation, or rented, slot machine revenues also increased, hitting $274.4 million, up from 254.2 million the year before, Falcone said.

Analysts are just as bullish on the coming year for IGT.

Falcone said IGT is likely on its way to selling 50,000 replacement machines this year, while demand for EZ Pay remains strong. It has already sold 25,000 replacement units.

Wall Street estimates for IGT have not factored in the proliferation of gaming to added jurisdictions.

However, IGT's Baker said legislation already has been adopted for expanded tribal gaming in Arizona, Wisconsin, Idaho and New York, and prospects are good for added opportunities in Delaware, West Virginia, Rhode Island, Canada and New York through the introduction of slot machines at race tracks.

"Our prediction is we'll see 10 more states (with casino or racino gaming) in the next 10 years," he said.

"The only options states have is to increase taxes, cut spending or legalize gambling. I think their choices will be clarified before our next (quarterly earnings) conference call," Baker said.

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