IGT earnings improve in fourth quarter

Thursday, Nov. 7, 2002 | 11:12 a.m.

RENO -- Slot machine manufacturing giant International Game Technology today reported financial results that exceeded expectations, as IGT sold more gambling devices and appears to have reversed a slowdown in its participation game business.

IGT said net income, before one-time items, increased 49 percent to $83.7 million for its fourth quarter ended Sept. 28 versus the same quarter in 2001.

On a per-share basis, adjusted earnings increased 30 percent from the year-ago quarter to 95 cents.

Revenue, including earnings of unconsolidated affiliates, increased 56 percent to $522.5 million.

Investors may have expected even better results, as the company's stock fell 97 cents to $74.41 this morning.

Including one-time items, IGT reported net income and earnings per share of $62.9 million or 71 cents for the quarter. For the same period in the prior year, IGT reported net income and earnings per share of $55.5 million and 73 cents.

Cash flow or EBITDA (earnings from operations before interest, taxes, depreciation, amortization and stock-based compensation) increased 56 percent to $198.9 million for the quarter.

During the current quarter, one-time items included litigation accruals totaling $20.2 million ($12.6 million after tax) and $12.3 million after tax for the retirement of debt. Another $4 million was written off against casino and slot route operations that will be sold because of IGT's takeover of Anchor Gaming.

IGT sold 30,700 machines worldwide in the quarter compared to 26,900 machines in the same period of fiscal 2001.

"To date, there have been several announcements by major multi-property casino operators committing to replace existing slot machines with machines equipped with EZ Pay(TM) (coinless) technology. We are confident that the replacement demand we have experienced will continue to increase," Chief Executive Thomas Baker said.

UBS Warburg analyst Robin Farley called it a "great quarter" as IGT seemed to beat expectations on several fronts.

"After the last two quarters of a flat installed base, IGT grew its base of revenue-sharing games by 300 units, ahead of expectations" Farley wrote in a research note. "IGT has at least in this quarter reversed some of the push-back from operators on revenue sharing."

But Lehman Brothers analyst Joyce Minor noted many casinos continue to get rid of machines in which they must share revenue with slot machine makers.

"Remember, IGT is installing 2,500-3,000 (revenue sharing machines) per quarter, so net installs of just 300 means removals are still quite high," said a Lehman Brothers research note.

Bear Stearns noted in its research note that IGT has been an aggressive purchaser of its own shares, which boosted per-share earnings by about 4 cents.