Anchor deal boosts IGT earnings

Tuesday, July 23, 2002 | 11:18 a.m.

International Game Technology said today it rode its acquisition of Anchor Gaming to its second straight quarter of record earnings.

Reno-based IGT, the nation's largest manufacturer of slot machines with an estimated 70 percent market share, reported earnings of $82.6 million, 91 cents a share, for the company's fiscal third quarter ended June 29. That compares with earnings of $56.7 million, 73 cents a share, for the same quarter a year ago.

The company reported revenue of $522.4 million for the period, compared with $320.1 million a year ago.

The period included a 1-cent-per-share extraordinary loss related to the early redemption of $909,000 in debt.

The per-share earnings beat Wall Street expectations. A survey of 15 analysts by Thomson Financial/First Call projected earnings per share of 89 cents for the quarter.

The stock market responded negatively this morning, with shares down $3.78 to $48.50. Some stock watchers did not place much credence in the downturn, given the volatility of the market and the roller-coaster ride it took this morning.

IGT officials attributed the company's favorable results to the full consolidation of Anchor, which was completed in December with a $1.4 billion acquisition. Previously, IGT and Las Vegas-based Anchor had a 50-50 partnership.

"We are extremely pleased with the June quarter and nine-month results and believe they underscore the breadth of our markets and the diversity of our business segments," Chief Executive G. Thomas Baker said.

"This translates into a consistency of earnings for IGT and highlights the company's ability to generate significant levels of operating cash flow," Baker said in a statement.

IGT and its rivals have been boosted in recent years by the proliferation of gambling in several states, particularly on Indian reservations. Analysts say several factors point to continued growth for the company.

"The future remains strong because a number of states are being challenged by budget deficits," said Andrew Zarnett, a gaming analyst for Deutsche Bank. "With this being an off-election year, there will be a high likelihood of states approving gaming devices at existing venues like racetracks. Volume should be up going into 2003 because of the possibility of new venues as well as new technology and the continued replacement cycle."

Zarnett said IGT's strong results "underscore the strength of IGT's position in the marketplace as the clear leader."

For the quarter, the company sold 17,600 machines domestically, compared with 18,100 for the same period last year, and 13,700 internationally, compared with 14,400 a year earlier.

The company was strongest in new and replacement sales in government-operated public gaming venues, shipping 5,200 units compared with 250 a year ago.

The company said expansion at several West Virginia racetracks and in video lottery venues, as well as strong replacement demand from the Atlantic Lottery Commission in Canada and the Oregon Lottery offset lower volumes in the Nevada market and the maturation of the California Indian casino market.

IGT also formally announced it is selling its casino operations division, which includes two casino properties in Colorado and a slot route in Nevada, all acquired in the Anchor deal. Analysts had expected those assets to be sold. They contributed 2 cents per share to the operation and they'll now be classified as discontinued operations.