International Game Technology PLC (IGT) 2003 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the IGT second quarter earnings release conference call. Now at this time, all participants are in a listen only mode. Later we will conduct a question and answer session and I'll give instructions at that time. If you should require assistance during your call, please press zero then star and an operator will be happy to assist you offline. As a reminder, today's conference is being recorded. I would now like to turn the conference over to our host the CEO of IGT, Mr. Tom Baker. Please go ahead, sir.

Thank you, and good morning to all of you. Thank you for joining us today. For our conference call. We're going to report on the second quarter of our fiscal 2003.

We reported a strong quarter this morning, in fact, a record quarter. Our results were driven by continuing focus on providing our customers with the best technology, primarily in the cashless area as well as the best game content in the industry.

Our operating income grew by 22% for the quarter as each of our business segments posted strong results year over year. We had good margins, we had excellent game operations results.

We've seen accelerating replacement demand as we predicted would happen, and we've had a rebounded international sector, they performed pretty well in Europe and England specifically. All of this led to earnings per share from on thing operations growing 34% in the quarter and 38% for the first half of the year.

We had a few financial initiatives that improved our bottom line results and left our balance sheet the strongest its ever been. The March quarter was also significant in that it was the first quarter in which results were directly comparable to the prior year due to the inclusion of the Anchor Gaming results in both quarters.

At this time, I'm going to turn the call over to Maureen Mullarkey our Chief Financial Officer, who is going to take you through some of the business highlights of the various segments that produced the results that I just described briefly. Maureen, would you take it?

Sure. Thanks, Tom.

Before I begin, I'd like to note that during this earning conference call certain statement also contain forward looking statement such as forecast and financial information. Although IGT believes these expectations reflected in any of its forward looking statements are reasonable, actual results could differ materially. IGT future financial condition and result of operation as well as any forward looking statements are subject to change and inherent known and unknown risks and uncertainties. IGT takes no obligation to update our forward looking statements. All forward looking statements in this conference call reflect IGT's current analysis of existing trend and information and represents IGT's judgment only as of this time. Actual results may differ from current expectations based on a number of factors affected IGT's businesses. Information on factors that could affect IGT's future business and financial results are included in our annual report on form 10-K for the year ended September 28, 2002, and other public filings made with the Securities and Exchange Commission. This call -- the webcast of this call and the replay are the property of IGT. It is not for rebroadcast or use by any other party without the written consent of IGT. By remaining on the line you are agreed to and bound by the terms. Okay.

I'm going to review the business segments as Tom mentioned. I'm starting off with product sales. Revenue during the quarter reached $254.5 million, up 23% from the prior year levels to passing the record just set last December by 6% due to rising demand for placement game and shipments in two existing markets.

Total quarterly shipments at 34,800, a new record were comprised of 19,800 domestic games representing 57% of the total and 15,000 international shipments. Average prices of 7300 improved 5% over the prior year quarter primarily related to slightly greater mix of domestic gains and higher international average sales prices resulting primarily from stronger parts and systems revenues internationally.

Domestic ASP were on par with last year due to several factors including increased EZ-Pay systems revenue, greater intellectual property package or IPP royalty revenues offset by lower priced Quebec gains which represented a significant portion of product mix in this quarter. Sequentially average price were down 10% due for a greater percentage of the lower margins, Quebec and Japanese shipments, again offset by improved EZ-Pay systems and related revenues.

Gross profit margin on product sales was 48% versus 43% last year due to a higher domestic volumes and related operating efficiencies.

As previously mentioned we also earned more significant revenue from the system side of the house related to a greater number of games installed on ticket-in ticket-out systems.

Looking forward margins should fall in the mid 40s range due to a conservative view on the geographical mix of sales, contribution related to higher margin EZ-Pay systems, IPP royalties and international parts revenue.

Domestic products sales totaled 19,800 and were dominated by replacement sales which were 70% of the total and sales related to expansion of existing properties comprising 30%. The replacement market accounted for 13,900 units, a new record for IGT. Which brings total domestic replacement sales year to date to 25,000. The first 4100 units of the previously announced Quebec lottery order for 8400 machines was shipped during the quarter. Along with an additional 1500 shipments into the province of Saskatchewan. In addition to these replacement market, the markets of Alberta and Manitoba are also set for replacements anticipated over the next 18 months.

The tide of EZ-Pay orders continues to grow momentum. EZ-Pay highlights in the quarter include installations of 120 systems, up from 95 at the beginning of fiscal 2003 and 107 at the end of Q1. The demand for EZ-Pay gains continues and today we announce a new agreement with stations casinos totaling over 8,000 additional games spanning a two and a half year period.

New and expansion units totaled 5900 machines during the quarter and were delivered into most major casino markets and into several different Native American jurisdictions including the states of California, Arizona, North Carolina, South Dakota, and New Mexico. As always, exceptionally strong gains produce exceptionally strong sales and our current line-up is the best ever, including top of the line entries in all categories. Spinning real, video poker and video simulated spinning real.

International operations posted very impressive results during the quarter. International units totaled 15,000 versus 10,500 in the first quarter of this fiscal year and 13,200 for the second quarter of last year. Over 10,000 units were sold by our Bar Crest subsidiary which is an all-time high for us since we purchased that company in 1998. They had leading market shares in the period at over 40%.

IGT Europe posted excellent results with shipments to new or expanding casinos in Holland, the Ukraine, Sweden, Portugal for an aggregate share of 50%. IGT also shipped 600 games to the new K-land Casino in South Korea, a new game being market with 58% share.

Due to the ongoing weakness in the Australian market related to restrictive government anti-gaming regulations, known as harm (ph) minimization, which continued to impact both operator and suppliers across the market, we downsized our local subsidiary and expensed approximately $900,000 in related costs.

The flow of incoming orders remains quite strong and dominated by increased demand for EZ-Pay games. The result impact on our business is longer lead times as we ramp up to meet this demand.

In addition we went live with our third wave of our new enterprise resource planning system that included all of manufacturing and related he departments on December 31, 2002. This transition to this new system as expected resulted in a temporary reduction in manufacturing output during the quarter just ended.

The efforts to bring this new integrated system into IGT is in its third year and are the results of efforts expend bid each and every one of our employees. Year to date spending on this project totals $9.6 million almost evenly split between SG&A expense and CAPEX. Life to date spending totals $42 million with approximately $18 million flowing through operating expenses over the period and $23 million capitalized.

This new technology gives us enhanced operating flexibility to adjust to the ever increasing demand for our products and provides our employees with the best tools available with which to run our business.

Current product output at IGT is back up to pre-go live run rates of approximately 400 machines per day and our backlog currently stands at over 25,000 machines.

Moving on to game operations, revenue at $274.4 million was an all-time high up $20 million or 8% from Q2 of fiscal 2002 and $26 million or 11% from the immediately preceding quarter.

Quarterly margins at 54% were Down 100 basis points from last year because of higher jackpot related costs offset by costs synergies related to the integration of Anchor Gaming and because of lower fixed asset removal costs.

We estimate that the record setting $39 million Nevada megabucks jackpot which was hit in late March contributed approximately $3 million to the operating profit line. Increased revenue underscores the success of our game design top performing titles, ongoing efforts to replace lower earning games with stronger, higher earning ones and placement into less saturated markets. All results in increased revenue per machine of approximately 9% sequentially and approximately 5% on a year-over-year-basis.

We continued to stress the quality of the installed base even if it means we actually remove lower performing games in order to ensure the highest yields and returns to our customers. The installed base of IGT owned recurring revenue gains which is made up of machines operated in both casinos and resinos (ph) grew by 300 machines sequentially and 900 machines as compared from last year.

The number of games in the casino category was aided by an increased number of installations in Native American markets and for the first time since September 2001 Nevada games grew by 150 units on the strength of I Love Lucy, Beverly Hillbillies, Lifestyle of the Rich and Famous and Family Feud. These gains were partially offset by the continued managed removal of end of life, former Anchor Gaming stand-alone units.

Some of the new game introductions for the remainder of fiscal 2003 include Punch a Bunch, which is a brand extension of the very popular Price is Right, Magic 8 Ball, M.A.S.H., which will be our first two cent production, and Young Frankenstein, our latest game introduction onto the spooky slots wide area progressive system. Lottery and Paramutual, our third and final business segment, continues to be a consistently profitable cash flow positive business.

As discussed in our last call, OES and the Korean Lottery Services, or KLS, went live with South Korea's first online lottery in early December 2002. The Korea contract is profitable and our revenue from this source is proportionate to lottery play. Currently, there are 5,000 retail outlets on line. We are encouraged about this opportunity and pleased with initial play levels.

On the domestic front, the Florida lottery commission issued an RSP early in the March quarter. The responses to the RSP were required by March 28th, 2003, and the anticipated award date will be no later than July 31, 2003. We are currently under contract with the Florida lottery through December 2004. I'd also just like to note that this contract generates approximately $30 million in annual revenues and approximately $4 million in annual EBITDA as I've seen some various different estimates of this contribution to IGT.

During the quarter, IGT committed to sell its non-strategic Paramutual wagering business, United Tote, which is acquired in connection with the Anchor acquisition. Based on our commitment to a plan to sell United Tote and preliminary offers of interest from perspective buyers in the current quarter we estimated a loss on the sale of discontinued operations of $6.7 million net of tax. We expect to consummate the sale no later than Q4 of '03. IGT also committed to sell the casino and slot route operations acquired in connection with Anchor acquisition.

In late December 2002, the company announced that it had entered into an agreement to sell its two Colorado casino operations to Isle of Capri Blackhawk, for $84 million. On open April 17 we received approval from the Colorado Gaming Authority for the sale of our two Colorado casino operations and expect to close very shortly.

In late February 2003, we announced the closing of the slot drop sales for total gross proceeds for approximately $60.5 million.

A couple comments on our cash flow. Cash flow provided from operating activities was $124.3 million for the six months ended as compared to $245.2 million in the prior year. The decrease in operating cash flow primarily resulted from increased short-term receivables of $75 million related to higher revenues in all segments, increased notes and contracts of $16 million, primarily related to first quarter machine shipments and Native American casino openings, increased revenue balances due to higher gaming machine demands and increased tax payments related to higher profitability.

Date sales outstanding were 103 for the second quarter versus 98 for the preceding quarter and 134 for the prior year period. Inventory turns were 3.3 times for the quarter static with December and last September levels.

Our working capital has increased approximately $600 million since the end of the first quarter primarily due to the proceeds received from the convertible debt offering. The strength of our balance sheet continues to provide us with the flexibility to capitalize on strategic and financial opportunities.

During the quarter we completed an offering of a 30-year zero coupon, senior convertible debenture having a face amount at maturity of $969.8 million resulting in gross proceeds to the company of $575 million. This debt accretes at 1.75% per annum and can be put by bondholders or called by us beginning in January 2006. Based on the market price condition for conversion, our stock would have to trade above $134 before this debt could be converted into equity.

Concurrent with this offering, we repurchased 1.8 million shares at an average price of $77 for total consideration of approximately $137 million. The remaining proceeds will go towards the retirement of debt, ongoing share repurchases, and other appropriate initiatives as they present themselves. Moody's reviewed our financial condition at the time of this offering and upgraded our debt rating to investment grade. Standard and Poor's also maintained its investment grade rating for IGT. On a trailing 12 months net debt basis our leverage ratio is .75 or less than 1.

The second quarter financial results we realized several different quarters -- several different records and clearly driven by strong results in each of our segments. This underscores both our geographical diversity and the resiliency of you our earnings and cash flow. In addition our balance sheet strength positions IGT well to take advantage of opportunities into the future. This concludes my prepared comments on the operating results. You'll now turn it back over to Tom.

Thank you, Maureen. I think with the press release that we've put out, Maureen's comments, you guys should have a pretty good idea of what the quarter is all about and we'd like to open it up to take any questions that you might have.

Ladies and gentlemen, if you wish to ask a question, please press the one on your touch-tone phone. You will hear a tone indicating you have been placed in queue. If you press one prior to this announcement we ask that you do so again at this time. You are able to remove yourself from queue at any time by pressing the pound key. Ladies and gentlemen, if you are using a speakerphone, please pick up your hand set before pressing the numbers. One moment for our first question. Thank you, our first question is from the line of Joyce Minor of Lehman Brothers. Please go ahead.

Hey guys, I'm wondering if you, Maureen, can speak a little bit more about the forward looking expectations for the margins on the product sales business. I think you indicated you're looking for mid 40% range. Can you talk to us about what you're expecting to change in the way of mix or what have you?

We posted 48% margins in the current quarter, very strong. What's difficult to predict with certainty is just the different geographical mix. As you're familiar, Joyce, with the impact between, for instance Bar Crest in Japan or the Quebec order, so taking a conservative view on that. What we're starting to also realize and see in the results is a greater stream of revenue related to intellectual property and EZ-Pay related systems revenue. We're seeing that come through starting really in the first quarter and picking up a little bit in the second quarter so that because it's a new trend, also taking a conservative view on that. So we'd just like to from a prudence perspective lead to you margins at probably over 45% but perhaps in the range of 45% to 48%.

Okay. Thank you. And then -- costs are going to continue?

Sorry.

I'm under the impression that some of those manufacturing systems cost you talked about were in the SG&A number and that's what made that number look a little bit high this quarter?

The SG&A is high related to about $3.5 million in costs related to downsizing our Australian operations and then we finalized the integration of the video lottery consultant subsidiary into Reno so we also booked some costs related to that. We went live with our ERP system at the end of December and went from a capitalization phase to an expense phase based on GAAP accounting rules which resulted in approximately $3 million additional in expense. Over and above that, just higher incentive related costs because of higher profitability.

Okay. So the severance costs I wouldn't expect to continue but my question was would the ERP costs continue?

It won't continue at this level but they'll taper off down to maybe about $1 million to $2 million level.

Thank you.

You're welcome.

Our next question is from the line of Robin Farley of UBS Warburg.

I have three questions. When you were talking about market share. I don't know whether you gave it for domestic market share? And, also, a little bit more detail on shipments by market? And then, lastly, if you could comment there's been some stories in the press about New Jersey potentially looking to tax revenue sharing games. If you could talk a little bit about that.

Certainly, Robin. Our aggregate market share for the March joy shipments in the quarter was approximately 70% domestically. We shipped to, again, the Quebec lottery, Saskatchewan lottery, British lottery, Mohegan Sun to mention a few of the large sales. March shipments in the quarter in Nevada was 4,000. Let's see. Regional markets 3,000. And Native Americans 4800. Public gaming, which includes the Canadian sales, 6100. Total domestic 1980. Australia 1100. Europe 1200, Japan we did ship 1600 games, the remaining markets a thousand for just under 15,000 for international shipments.

This is Tom. I'll try to respond to the tax discussions. We've seen some newspaper articles and I guess that's what you're referring to about some contemplated taxes in New Jersey, that might have an impact on IGT. As of the moment, we can find nothing that has been introduced nor have we had anything official other than newspaper articles. There seems to be quite a bit of phone calls from the investment community about this and some people have allegedly -- have alleged that some of our customers are working with the legislature to impose what they refer to as an IGT tax.

We have had issues with our customers in the past regarding pricing and taxes. Generally it's been taxes that they pay that we've talked to them and through pricing negotiations have absorbed some of this. I don't think we've ever been in a situation where our customers have actually tried to get governments to tax us without us being involved in any kind of discussion and it would surprise me if that were going on today. I can't imagine anybody in the industry trying to bring more taxes on people -- to the industry. But that's what we're being told. I don't know anything of any bill that's been introduced so I really don't know how to comment other than I read the same newspapers that you've read, I guess.

Okay. Great, thank you.

Thank you, and our next question is from the line David Anders of Merrill Lynch.

Maureen maybe you can give us a little color on the Quebec order because has of it's shipped, does the next half come next quarter or is that going to be spread out? . If you can kind of give us the magnitude. I believe you indicated that Alberta is going to start take some replacements. Is that a full-out replacement or just a partial?

The Quebec order we will ship the remaining part of that order in fiscal 2003. The level of shipments is really a function of, you know, customer acceptance. So I think the majority of those will go in the Q3 period. And then I'll let T.J. Matthews, our Chief Operating Officer comment on the Alberta order.

In Alberta what they have done to date is authorize replacement of 50,000 of the machines, they have an RFP for that which we've been awarded about half of the machines that were in the RFP. We anticipate that there will be a second FP that will replace the remaining machines in the market probably sometime towards the end of this calendar year.

I'm sorry, the total install base in Alberta is?

It's about 5,000 machines.

Very good. Thank you.

Thank you and the next question comes from the line of Steven Kent of Goldman Sachs. Please go ahead.

Hi, good morning. A couple of questions. First, maybe just most fundamentally where do you think you are on the rollout of cash list across the country? We've seen a lot of the major gaming operators move toward cashless including even Harrahs (ph) discussing it today. What inning do you think you're in? Are you in the first inning, second, or the fifth inning? Second, given the balance sheet, given the cash flow that you're generating as always I'd like to hear your discussion with what you're going to do with all of that cash especially since it's looking like it's starting to depress your overall returns?

I had actually some comments here I thought for the close but let me move them up here on the cashless gaming side. We think that the industry is clearly adopting cashless gaming. And that IGT's EZ-Pay ticket-in ticket-out technology is a big part of this. I think there's about 700,000 games in North America and there's 400,000, we believe, that are still legitimate targets gets for replacement. California, which started out as a cashless market and the Las Vegas local market, not the strip, not downtown, but the local market, have the highest penetration. I think both of those markets are what we would classify as over 50% of the new cashless gaming type of machines. Midwest markets like Missouri, a little over 20%. Most of the other markets are less than 20%. And some markets, Illinois, have yet to approve the technology. I think we're in the beginning stages of this cycle. I think the demand for cashless gaming is going to go on for the next three or four years. As far as the cash flow. I think Maureen made some comments but do you want to reiterate those?

Sure. We did generate proceeds from the convertible debt offering in January and we did want to take advantage of a very good market for IGT to raise additional funds. We do have $400 million in debt through next year. And we will continue to buy our shares. And it further gives us operating flexibility to take advantage of any opportunities. So you will see us do what you've seen us do in the past.

Okay. Thank you.

Thank you. And the next question is from the line of David Barteld of Wells Fargo. Please go ahead, sir.

Good morning. My one final question remaining was on the gross revenue participation ads and removals. Could you provide us with those numbers, please?

We've been trending at about a thousand machines per month of additions and we've been trending slightly lower than this quarter from removals. And as mentioned in my remarks, we've seen additions in the Native American space which we have seen as a trend really over the last year or so. Nevada's been the hard market for us to grow and we think that's partly related to the related health of that market although it was healthy it's the only gaming market that didn't grow last year. So we're extremely pleased with the strength we've seen in Nevada recently because of our game introductions as I mentioned, I Love Lucy, Beverly Hillbillies, Family Feud, to name a couple.

Great quarter. Thanks.

Thank you. And, ladies and gentlemen, if you have any additional questions, please press the one on your touch-tone phone. Again you will hear a tone indicating you have been placed in queue and you are able to remove yourself from queue at any time by pressing the pound key. And we have another question from the line of Harry Curtis of J.P. Morgan. Please go ahead, sir.

Good morning, I've got a follow-up question to Steve's question. Tom, of the 400,000 machines that you just spoke about that need to be replaced, can you give us a sense of what percentage of those would be new versus retrofit?

I think those would probably all be new.

Okay. The second question that I had, if you could comment on yesterday's appellate court decision affirming multimedia's class 2 slot technology and with that decision does it open a new segment of the Native American market to you in any significant way?

T.J. Matthews is going to respond to that.

Obviously we've looked at those markets, Oklahoma and Florida being the two most prominent. You have an awful lot of machines to be void so we've been constantly monitoring class 2 and the prevention of us in those did for being in those markets has been the lack of clear rules. As rules get clearer and we understand better the kinds of machines that are deemed to be class 2 as a result, or to the extent that the rules get clearer and give states more comment to enter then you'll see IGT show up in those markets directly providing machines to those customers. In the interim period of time we're obviously positioning ourselves for that future vent as well as seeing if there's any other business relationships we can have in the markets presently.

So are the rules they stand now still too Fuzzy even given yesterday's decision?

There is no process that actually blesses a current game introduction as being class 2. So the only process that exists is the kind that happened yesterday where there's this, you know, it's the result of a long court case that ultimately blesses as single game. And that's an environment in which we don't feel comfortable.

And my last question is, Maureen, given the strength of this quarter and your backlog, it looks to me like the earnings this year might be a bit closer to $4.30. Is that -- that the current estimate of $4.04 is a little light. Can you comment on that?

Let me comment on that, Harry. I think -- because we thought a lot about this in light of the strength of this quarter as well as the current environment we're in, in terms of trying to give guidance. I think you can look for the next two quarters to be like this quarter. I think that is going to take the numbers up. I think in the $4.20 is the number that I come out with, if I do that. If the numbers turn out to be somewhere a dollar -- $1.05 to $1.10 in that range for the next two quarters, that would be the guidance we'd give. And then in terms of going forward, next year, I think EPS guidance of 15% is the guidance that we're comfortable with.

Okay. Very good, thanks a lot.

Thank you. Our next question is from the line of Jack Falaskis from Gates Capital.

Maureen you mentioned a share repurchase from was concurrent with the offering of the debt. What was the total purchases in the quarter?

The total purchases in the quarter were 2.1 million shares.

2.1 million shares. Okay. Because I had you at -- you had 4.4 million authorized going into this quarter and then you authorized another 10 million so I thought you had 14.47 million so I don't --

No, we now have 10 million available for authorization.

As of today?

Uh-huh.

Okay. So you purchased shares after the quarter ended?

No. We purchased shares -- no we increased it to 10 million at our board meeting at our shareholder meeting in early March of this year. So at this point in time we have 10 million shares approved.

Okay just can I get some balance sheet items? What were the current investments to fund jackpot liabilities and current assets?

You know what, let's see --

Isn't that on the press release?

We have an abbreviated --

I'm looking for the available cash of the --

The investment --

Of the 958 that I'm looking for.

The short-term jackpot were 41 million.

What about short-term jackpot liabilities?

180 million.

180.

Okay?

Yeah. And then one more. Just the net assets held for sale?

The net assets held for sale -- net assets held for sale were 100 million.

Thank you.

You're welcome.

Thank you. And our next question is from the line of Bill Lerner of Prudential. Please go ahead, sir.

Thanks. Tom, just as a follow-up as it relates to you effectively taking numbers up for the balance of the year. You've talked in the past about 50,000 replacement units per year or run rating that. Obviously Q2 numbers suggest that your run rating ahead of that. So would you say that 50,000 replacement unit number is conservative at this stage and then I have a follow-up?

Well, I hope so. I said we'd get to a run rate of 50 and we're there for the first six months of the year. We're at 25. So based on the numbers that I said in terms of the 400,000 machines, eligible for replacement over the next three or four years. I can't predict what share IGT will sell but we plan on getting our fair share. I hope it is low. But I don't have a new -- I don't have a new estimate at this time. We'll see how the next couple of quarters roll out.

Okay, thanks. Then when do you begin shipping the station order?

The station order?

Underway and ongoing.

You must mean the casino in California?

No, no, you talked about 8,000 units over two and a half years.

That's underway now. So that's -- that's continuing.

Okay. We have not seen any of that in the just reported quarter?

No.

No. And 8,000 does include the Thunder Valley order which we will ship in anticipation of them opening in summer. It will impact the current year fiscal result.

That's not all replacement.

Right. What share did you get of the thunder valley property? Do you know?

A little over 80%.

Great. Thanks, guys.

Thank you and our next question is from the line of Mark Falcon of Deutsche Banc, please go ahead, sir. March Falcon your line is open. We'll move on to a follow-up from the line of Dave Anders, please go ahead, sir.

Maureen, just for clarification did you say on the share revenue gains did you add a thousand, was that a quarter or per month, on a gross basis

Per month.

And a quick question on United Tote. Does that lose money in any given quarter? Or sit always slightly positive?

It was pretty much kind of break even.

Okay. Thank you.

Thank you at this time, Mr. Baker, I'll turn the conference back over to you. We have no additional questions.

Mark disappeared?

Yes, sir.

Okay. Well, just in the closing comments, I did talk about the replacement market and what we think is going to happen. We think that's very strong for us for a while.

The other thing that I wanted to leave here that we haven't talked about is that the fundamental problems that face state governments, has been talked a lot about. It hasn't changed. It hasn't diminished. After -- in the last three months. Tax collections are still lagging. Government operations are still rising in terms of their costs. And budget deficits continue to grow right now. These fundamentals leave media and the analyst community to focus keenly on legislation that may be passed regarding gaming.

There is, however, a certain amount of gaming legislation that's already been approved. And this expansion receives minimal coverage and I'd like to point some of it out at this time. Within the Native American community, markets of Arizona, Wisconsin, Idaho, California, New York are going to turn into commercial reality within the remainder of this year and next year. The Arizona market based on what happened in the last election may double with an approved expansion of 5,000 to 6,000 machines. In Wisconsin the Potowami (ph) tribe operates a casino in downtown Milwaukee. They have renegotiated for an expansion of 1500 machines. Idaho is a state we have never sold to may become a brand new market. A event ballot initiatives allowed four Native American tribes to install games that will create an opportunity of about a thousand games for our industry. And then California, which is a closely monitored state by everybody, negotiations are to amend contracts are underway and 20 of the casinos have met with governor Davis so far and many of these would like to see the current cap on the number of machines lifted and are willing to negotiate in some way to give revenue to the state of California. And then, of course, in New York there's been enabling legislation for six Native American casinos. There is one currently operating. The Seneca's in Niagara Falls. They are pursuing a second license in Buffalo. The Onidas (ph) are operating and are close to reaching and settling a long standing claim against the state which could include one or two licenses in downstate New York.

In other areas, other than Native American, public gaming, there's a number of opportunities that exist. In Delaware, which has been a good market for us, the governor's on record of proposing an additional 1700 machines for the track and an additional 500 eventually approved for Delaware Park. West Virginia an additional 500 games have been approved for Mountain Air Park. Rhode Island has approved an additional 1100 games. In Canada, casino Niagara has announced an expansion to be completed within a year that could be at much as 3,000 games and New York we talked about Native American, but they've announced approaching something over 13,000 games for their racetracks which is still subject to legislative activity regarding the revenue share. But that appears to be moving ahead.

So we think that although a lot of states have completed their legislative sessions, a number of are still in session. They're attempting to balance their budgets and there's a lot of things that are yet to happen. Our prediction, I guess, about this time next year that we'd see ten new states in the next ten years. Since that time New York has approved gaming and the first casino is opened. The Seneca casino in Niagara Falls. Idaho is just about to get something going, I guess that classifies as state number two. I think we'll see some more.

The primary options that the states have is to cut spending, raise taxes, legalize gaming. We think there's quite a bit yet to happen and a lot of this will be clarified before we have our conference call for the third quarter. Thank you very much for listening to our conference call this morning. And that concludes the conference at this time. Thank you very much.

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