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Fourth-Quarter Profits Surge 72 percent for Slot Giant IGT

RENO -- With casinos converting to cashless slot machines and gaming proliferating nationwide, Reno-based International Game Technology continued its record-breaking growth rates in the quarter and year ended Sept. 30.

Furthermore, the slot maker's outlook "remains bright," Deutsche Bank analyst Marc Falcone said Tuesday after the company announced its quarterly earnings showing net income was up 72 percent for the quarter.

With several major orders recently reported, including Station Casinos and Harrah's Entertainment, IGT continues to be in "the sweet spot of the replacement cycle," he said.

At the end of October, Station Casinos ordered 5,000 new EZ Play gaming machines to complete its transition to 100 percent ticket-in ticket-out machines within two years. Harrah's earlier in the month ordered 11,000 units, generally thought to be the largest single order ever placed for slot machines.

In an advisory to investors Tuesday, Deutsche Bank projected strong domestic product sales for several more quarters as operators continue to convert to cashless.

"Near-term, IGT could (also) get a pop if jurisdictional expansion is approved in Colorado or Maine, and we also believe Maryland, Pennsylvania and Ohio are opportunities for expansion," Falcone said.

Net income at IGT increased to $108.3 million in its fourth quarter ended Sept. 30, up from $62.8 million in the same period a year earlier.

Falcone called it a strong quarter for IGT with earnings of 31 cents per share, 3 percent to 10 percent ahead of Wall Street estimates.

Cash flow in the quarter increased to $215.6 million, up 17 percent from $184.8 million in the fourth quarter of 2002. Cash flow is generally defined as earnings before interest taxes, depreciation and amortization.

Revenue rose 13.6 percent $547.5 million from $482.1 million.

IGT Chief Executive Officer T.J. Matthews said in a conference call with Wall Street analysts that this was the 15th consecutive quarter of year-over-year growth across the board.

For fiscal 2003, net income increased to $390.7 million, up 44 percent from $271.2 million in the previous year. Cash flow increased to $804.3 million, up 23 percent from $655,7 million in fiscal 2002. And revenue increased to $2.1 billion in the year ended Sept. 30, up 23 percent from $1.7 million in the previous 12 month period.

Falcone said IGT finished the fourth quarter with approximately 400 more games installed than Deutsche Bank had expected, as its installed base increased to 34,000 units.

"The growth in the installed base was driven by placements in Native America and Atlantic City," Falcone said.

He also said IGT continues to have "a rock-solid balance sheet," and that it is in a good position to increase its dividend payments, make strategic acquisitions and buy back outstanding shares.

A Merrill Lynch investor advisory following the earnings announcement said the only risks the company faces are increased competition from other manufacturers and the possibility of more restrictive purchasing policies on the part of casino customers.

Matthews said the company is on target to make 60,000 to 65,000 replacement sales in fiscal 2004, based in large part on the introduction of several new game themes at the Global Gaming Expo in September.

Game themes expected to be rolled out in early fiscal 2004 include new machines based on the "Wheel of Fortune," "The Twilight Zone" and Rodney's Reel Respect.

Matthews expressed confidence in the company's long-term prospects because, for the first time, IGT is entirely focused on manufacturing and distributing slot machines following the sales of several noncore assets over the past year.

IGT shares closed Tuesday at $32.75, down 75 cents, or 2.3 percent, for the day.

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