IGT enjoys record year, eyes continued growth

David Strow

Tuesday, March 5, 2002 | 10:34 a.m.

International Game Technology, the gaming industry's dominant manufacturer of slot machines, had a banner year to discuss at Monday's annual shareholders meeting.

The fiscal year ending Sept. 30, 2001, saw records set for revenues, profit margin, machine sales, cash flow and earnings per share. It also saw IGT's stock appreciate 16 percent.

Since Sept. 30, IGT acquired Anchor Gaming for $1.5 billion -- increasing its annual revenues by 60 percent -- and saw its stock gain another 65 percent over Sept. 30's closing price of $42.50.

"In all these years, I have never felt more secure in my investment in IGT," Chairman Chuck Mathewson told shareholders.

Much of Monday's discussion revolved around how IGT plans to continue that growth in coming years.

Introducing new slot titles capable of attracting players will obviously be one growth strategy, but another is "EZ Pay," a technology that replaces coins as a form of payment with tickets. Casinos purchased 38,000 slot machines as replacements for older slots in fiscal 2001 -- up nearly 100 percent from the prior year -- and IGT attributed "ticket-in, ticket-out" technology as one of the key causes.

Asked if that growth can be maintained, Chief Executive Tom Baker noted that U.S. casinos currently had 600,000 slot machines deployed -- and that less than 10 percent are currently capable of handling ticket technology. That leaves a huge chunk of slot machines that must be replaced if casinos want to offer cashless gaming -- and will continue to drive slot sales for years to come, Baker said.

"We've barely touched the surface," Baker said.

New Las Vegas locals casinos, such as the Suncoast, Palms and Green Valley Ranch Station, opened with largely cashless-capable floors. And Atlantic City casinos -- most notably, those owned by Park Place Entertainment Corp. -- plan to aggressively roll out the technology as well, Baker said.

The Strip remains one market where the technology has yet to gain much of a foothold, beyond a field trial at Paris/Bally's Las Vegas.

Sept. 11 caused Strip operators to "take a step back," Baker said, and re-examine capital spending. But as business returns, Baker said he remains confident Strip operators will begin introducing the technology.

"Cashless technology works," Baker said. "People like it."

Potential growth also lies in new markets, IGT officials said. In recent months, the hot growth market was California. About 45,000 machines are now in operation at Indian casinos across the Golden State, and IGT claims a market share of nearly 50 percent there.

The debate isn't about whether gaming will expand, Baker said. "Now, the debate is merely when and where it will be."

Baker didn't identify particular markets, but predicted that 10 states would legalize some kind of slot machine gaming over the next decade. Currently 13 states allow some form of machine gambling.

Also identified as a potential growth market was the United Kingdom, which is examining the introduction of Las Vegas-style casino resorts. But shareholders were told not to expect as much from the Chinese coastal city of Macau, which recently opened its casino market to competition. Las Vegas gaming operators Steve Wynn and Sheldon Adelson plan to build resort-style casinos there, and IGT is currently the only slot supplier in that market.

But Macau is also primarily a table game market, Mathewson said.

"That is not a big machine market," Mathewson. "There are many more tables there than we see in North America. But as it grows, we will be there."

IGT officials also didn't sound convinced that Mexico will move forward, though there is talk that the Mexican legislature will consider a legalization bill this month.

"It's never further away than a month, but it's also never closer than a week away," Baker quipped.

Former Gov. Bob Miller, an IGT board member, said there has been talk in several previous sessions that a bill would be introduced, but each time nothing materialized.

"If it is introduced, it would be a big step forward," Miller said.

IGT has been aggressive in acquiring other companies, and Baker said the company would continue to examine potential deals. However, he said the likely front for those deals will be overseas.

"In North America, it's getting a little difficult to acquire competitors because of our market share," Baker said.

IGT is also looking toward Internet gaming as a potential market, Baker said, though it's not a market IGT is involved in today.

"Today it is not regulated in a way that allows us to participate," Baker said.

If regulatory and legal issues are resolved, "IGT will clearly be a provider of content," Baker said. "Where we would go from that is not certain."