Slot maker’s profit up on coinless slot sales

By Liz Benston (contact)

Thursday, Jan. 22, 2004 | 10:46 a.m.

International Game Technology today reported a 92 percent increase in earnings for its fiscal first quarter as casinos traded in older machines for new ones and new locations gravitated toward IGT games.

The world's largest slot machine maker posted earnings of $176.3 million, or 50 cents per share, in the quarter ended Dec. 31. That compares to earnings of $91.6 million, or 26 cents per share, in the year-ago quarter. Revenue rose 24 percent to $608.1 million from $489.6 million.

While few states opened their doors to new forms of gambling over the past year, IGT executives said they are optimistic that discussions about gambling expansion will continue nationwide.

With 44 of 50 state governments back in session, gambling "is a major topic" and is favored by several governors as an alternative to raising taxes or cutting services in troubled times, Chief Executive T.J. Matthews said.

Governors in several states, including Oklahoma, Pennsylvania, Kansas and California, are looking to gambling as a revenue source, Matthews said.

"You're seeing more jurisdictions talk about gaming expansion than at any other time in the history of our company," he said.

New York, which is expected to launch slot machines at racetracks during the next several months, represents the single most important market on the horizon, he said.

Moreover, Matthews said IGT expects to introduce this year Class II machines in some markets -- such as Florida, Oklahoma and California -- after it obtains "more clarity" from regulators about the legality of such machines.

Class II machines are bingo-based electronic gambling devices that resemble slot machines and are primarily located in tribal casinos that can't offer traditional slots.

The company also is exploring other niche markets, including Alabama, which is pushing for video-based charity games, he said.

Excluding income from discontinued operations from the sale of a business unit, the company reported earnings of $116.7 million, or 33 cents per share, compared with earnings of $84.7 million, or 24 cents, a year earlier. On that basis, the company beat expectations as analysts had expected a profit of 29 cents per share.

During the quarter, IGT completed the sale of its online lottery business, IGT OnLine Entertainment Systems, to Scientific Games for $143 million. That unit accounted for $59.7 million, or 17 cents per share, of income from discontinued operations.

The company produced a record 34,600 machines in its Reno manufacturing facility during the quarter, while the profit margin increased to 50 percent in the quarter from 48 percent a year ago.

Domestic sales of new machines rose 17 percent to 22,600 units. Domestic sales of replacement machines -- largely driven by sales of cashless machines to replace coin slots -- rose 48 percent to 16,400 units.

Nationwide, the company installed 146 cashless slot systems in casinos, up from 126 a year ago.

Sales of new machines outside the U.S. grew 125 percent to 23,500, primarily because of record quarterly shipments to Japan and European casinos. Japanese shipments marked more than half of that, at 12,700 units, on the strength of a pachinko game that is "on track to become our highest-selling game ever in Japan," the company said. Lower shipments in Australia and the United Kingdom offset those results.