IGT hits the jackpot in its first quarter

A key observer of the financial health of major companies liked what it heard from International Game Technology last week.

IGT reported that its first quarter revenues rose 70 percent while its net income jumped 58 percent from the same period a year earlier.

The Reno-based company said its total revenues reached a record $531.5 million while its net income hit $87.9 million for the quarter ended Dec.

28.

Earnings per share increased 43 percent, from $.70 a share in the first quarter 2001 to $1.00 per share.

Moody's Investors Service liked the recent results at IGT enough that it upgraded the ratings of IGT's debt to Baa3 from Ba1.

That will reduce the interest that the company pays on its borrowings.

Moody's said it likes IGT's position as market leader, which has resulted in strong and improving cash flow.

It said IGT's share of the market for slot machines in North America has risen to 70 percent from 50 percent during the past 10 years.

Product sales revenues for the first quarter totaled a record $241.3 million, an increase of 21 percent from $199.6 million in the prior year period.

Gross profit margins on product sales rose to 48 percent versus 41 percent in the prior year period.

IGT sold 29,700 machines worldwide in the quarter compared to 32,500 machines in the same period of fiscal 2002.

"Achieving new records in the product sales segment is extremely gratifying, considering the current generalized weakness in capital spending," said G.

Thomas Baker, IGT's chief executive officer, in a prepared statement.

"I believe it speaks volumes about the value our gaming machines bring to our casino customers." The company is also optimistic about the future, saying "macro" trends, such as large state deficits, is helping to expand gaming.

Moody's agreed with that assessment.

"Demand for IGT/s gaming machines may increase over the next few years as states turn to gaming taxes to help close fiscal shortfalls," Moody's said.

IGT's Chief Financial Officer Maureen Mullarky said she expects the company to grow between 15 percent and 20 percent in 2003 and achieve gross profit margins between 44 percent and 45 percent.

The margins are improving, Moody's said, as IGT becomes a more efficient manufacturer.

In the first quarter, domestic sales of products jumped 53 percent, to 19,300 machines, due to shipments to new casinos, including the Seneca in Niagara Falls, N.Y., the Borgata in Atlantic City and the Tuscany and Cannery in Las Vegas, as well as widespread replacement sales.

The company said replacement sales were driven by IGT's EZ Pay ticket technology that lets casinos pay out slots using redeemable tickets rather than coins.

The technology can be used with slots made by IGT or other manufacturers.

Moody's said it believes the EZ Pay technology will continue to be a major part of IGT's business.

"Currently, only 10-15 percent of existing games are enabled with coinless technology, representing a large opportunity for IGT to supply replacement machines," the credit-rating agency reported.

IGT's installed base of recurring revenue machines, including machines placed in both casinos and racinos, was 32,500 at the end of the quarter, an increase of 600 from the same quarter last year.

Moody's estimated that revenue-sharing games generate about 48 percent of IGT's revenues.

The quarter also included income from discontinued operations of $3.7 million from the casino and slot operations it acquired in connection with the acquisition of Anchor gaming, a Las Vegasbased equipment maker and casino operator.

"IGT's liquidity profile remains strong as the company generates significant amounts of cash from operations," said Moody's.

It said it doesn't expect IGT to increase its borrowings any time soon.