GTECH Announces Record Revenues and Earnings for Fiscal 2005
Company Provides Update on Recent Developments in Brazil WEST
GREENWICH, R.I., April 14 /PRNewswire-FirstCall/ -- GTECH Holdings
Corporation (NYSE:GTK) today announced fourth quarter and year-end
earnings for the fiscal year ended February 26, 2005. "GTECH's
fourth quarter and full-year results provide further validation
that our business is operationally sound, financially strong, and
strategically on track," said GTECH President and CEO W. Bruce
Turner. "We enjoyed significant growth in total revenues in both
the quarter and the year, driven by the continued strength in same
store sales and strong product sales. We also met our overall
financial goals and objectives, despite the unexpected revenue
holdback in Brazil." "We are pleased with the strong operating
performance of the business in fiscal 2005, despite several
challenges," said GTECH Senior Vice President and CFO Jaymin B.
Patel. "The outlook for fiscal 2006 is promising, and we remain
excited about the future. Our significant successes in the
marketplace over the past 12 months position us well for continued
growth, and provide confidence in our ability to achieve our
long-term goals of profitability and value creation for our
shareholders." Operating Results Revenues for the fourth quarter of
fiscal 2005 were $337.9 million, up 20.9% over revenues of $279.6
million in the fourth quarter of fiscal 2004. Net income was $43.8
million, or $0.34 per diluted share, down 8.3% from net income of
$47.8 million, or $0.36 per diluted share for the same period last
year. Revenues for fiscal 2005 were $1.26 billion, up 19.6% over
revenues of $1.05 billion in fiscal 2004. Net income was $196.4
million, or $1.50 per diluted share, up 7.2% over net income of
$183.2 million, or $1.40 per diluted share, for the same period
last year. Net income in fiscal 2005 includes a one-time, after-tax
gain of $7.0 million, or approximately $0.05 per diluted share,
associated with the sale of the Company's 50% interest in Gaming
Entertainment (Delaware) L.L.C. Net income in fiscal 2004 includes
a one-time, after-tax gain of $3.3 million, or approximately $0.03
per diluted share, from the consolidation of the partnership that
owns the Company's corporate headquarters in West Greenwich, Rhode
Island. Earnings per share and dividends per share have been
restated to reflect the 2-for-1 common stock split effected in the
form of a stock dividend, which was distributed on July 30, 2004,
to shareholders of record as of July 1, 2004. As required by EITF
04-8, "The Effect of Contingently Convertible Debt on Diluted
Earnings Per Share," which became effective in December 2004,
diluted earnings per share for fiscal 2004 and 2003 have been
restated from $1.42 per share to $1.40 per share and $1.21 per
share to $1.11 per share, respectively. EITF 04-8 requires that all
12.7 million shares underlying the Company's 1.75% Convertible
Debentures be included in diluted earnings per share computations,
if dilutive, regardless of whether the contingency has been met.
Cash Flow and Investments During fiscal 2005, the Company generated
$375.2 million of cash from operations. This cash, along with cash
generated by the sale of available- for-sale investment securities,
was principally used to fund the Spielo Manufacturing Incorporated,
Leeward Islands Lottery Holding Company, Inc. (LILHCo), and
BillBird S.A. acquisitions of $200.7 million and to fund $245.6
million of systems, equipment, and other assets relating to
contracts. In addition, the Company issued $300 million of Senior
Notes during fiscal 2005; repaid the remaining $90.0 million of the
Company's 7.87% Senior Notes; repurchased $120.7 million, or 5.3
million shares of the Company's common stock; and paid cash
dividends of $39.8 million. At February 26, 2005, the Company had
$94.4 million of cash and cash equivalents and $196.8 million of
short-term investment securities on hand. At the end of fiscal
2005, the Company had no borrowings under its $500 million senior
revolving credit facility. Developments in Brazil The Company has
recently received written confirmation of an appellate court
decision concerning an appeal of a lower court's order freezing
GTECH's Brazilian assets and imposing a 30% withholding of GTECH's
fees from Caixa Economica Federal (Caixa) as indemnification for
potential future liabilities should a civil suit brought by the
Public Ministry prevail. GTECH has aggressively defended against
the civil suit which the Company believes is based on outdated and
faulty information. The three judge panel that heard the appeal
issued a unanimous ruling granting partial relief to GTECH that
reverses a substantial portion of the withhold-and-freeze order and
discontinues future withholding. At the end of fiscal 2005, the
amount withheld by Caixa from GTECH was approximately BRR68 million
or US$26 million. The court ordered amounts in excess of BRR40
million should be returned to the Company. As of today, the Company
is awaiting the return of withholdings which amount to BRR38
million or US$14 million, representing excess funds held in escrow
as of April 8, 2005. The appellate court decision is subject to
appeal by the Federal Attorneys through a motion for clarification.
If such a motion is not granted, the next level of appeal is to the
Supreme Judicial Court, the highest level appellate court for civil
matters. As background, GTECH's contract with Caixa expires on May
14, 2005. Caixa has announced an aggressive plan to implement a new
business model that includes the in-house development of its own
central system application, a phased de-installation of GTECH
retailer terminals, and the eventual takeover of operations from
GTECH. Caixa has conducted four commodities auctions for various
products and services and is completing its vendor contracting
process. GTECH elected not to participate in the commodity
procurements. Caixa has also publicly expressed its intent to enter
into a new contract with GTECH or extend its current contract to
assist in the migration process. Negotiations have recently begun.
The Company will issue updates as appropriate with respect to
developments on the recent court ruling and contract negotiations.
Financial Outlook The Company provided guidance for the full year
and first quarter of fiscal 2006. For the fiscal year ending
February 25, 2006, the Company expects service revenue growth in
the range of 8% to 10%, reflecting a 5% to 6% increase in same
store sales, the net effect of contract wins and the impact of
acquisitions, offset by a number of factors, including contractual
rate changes and fluctuations in certain foreign exchange rates
against the U.S. Dollar. The Company expects product sales in the
range of $180 million to $210 million. GTECH expects service
margins of approximately 40% and product margins in the range of
38% to 40%. The Company expects the full year tax rate to be
approximately 35%. Based upon this outlook, the Company believes
that earnings per share will be in the range of $1.53 to $1.58 for
fiscal year 2006, excluding the impact of the adoption of SFAS
123R, share-based payment, which may require companies to expense
stock options beginning in the third quarter of the Company's
current fiscal year. If GTECH were to adopt this new accounting
mandate at that time, it believes fully diluted earnings per share
would be in the range of $1.50 and $1.55 per share. For the first
quarter of fiscal 2006, ending May 28, 2005, the Company expects
service revenues to increase 5% to 7%, versus the first quarter of
last year, and product sales in the range of $30 million to $35
million. GTECH expects both service and product margins in the
range of 38% to 40%. The Company expects the effective tax rate to
be 36% in the first quarter. Based upon this outlook, the Company
expects earnings per share to be in the range of $0.33 to $0.36 per
share. This compares to the $0.40 per share reported in the first
quarter of fiscal 2005, which included a one-time gain associated
with the sale of the Company's interest in Harrington Raceway in
Delaware. Excluding that gain, recurring earnings per share for the
first quarter of fiscal 2005 were $0.35. In giving guidance, the
Company noted that ongoing developments in Brazil could positively
impact both the outlook for the first quarter and full fiscal year.
As the situation is fluid, the Company indicated it would not
include the potential impact in current guidance until the
situation becomes more certain. However, it noted that under
certain assumptions, incremental service revenues for the fiscal
year ending February 25, 2006 could be in the range of $25 million
to $35 million, and incremental earnings per share in the range of
$0.07 to $0.12. Those assumptions include: -- Receipt of 100% of
its Caixa-related service revenues during the fiscal year; --
Release of $14 million from the escrow account, including $11
million relating to the fiscal 2005 holdback; -- Negotiating a
one-year extension with Caixa that would conform to Caixa's public
goals to accelerate the de-installation of GTECH terminals; and --
Impact of potential incremental (non-Brazil) investments currently
being contemplated, in the range of $8 million to $10 million. In
the event that the court order is upheld and the Company receives
all monies due by the end of May, $15 million to $20 million in
incremental service revenues would occur in the first quarter and
the impact to fully diluted earnings per share would be $0.06 to
$0.08. The balance would accrue evenly throughout the remainder of
the fiscal year. The Company will provide updates as appropriate.
Fourth Quarter and Full Year Highlights In the fourth quarter and
full year of fiscal 2005, GTECH reasserted its technology
leadership and made significant strategic progress on all sides of
the business -- Lottery, Gaming Solutions, and Commercial Services.
During the quarter, GTECH was selected by the New Zealand Lottery
as the lead bidder for a complete lottery system conversion to
include a new integrated online and instant lottery system and new
terminals, following a competitive procurement. The Company also
signed a two-year contract extension to provide online lottery
products and services for the Argentine National Lottery. In
addition, GTECH's subsidiary Spielo will provide Sweden's Svenska
Spel with 2,000 next-generation wide area video lottery terminals
(VLTs). Also in the quarter, GTECH further strengthened its
corporate leadership and governance with the appointments of Walter
DeSocio as Senior Vice President, General Counsel, and Corporate
Secretary; and Paget Alves as a new member of its Board of
Directors. In addition, GTECH's Board was named the Top Performing
Board of Directors in Gaming by HVS Executive Search, an
international executive recruiting and compensation consulting firm
specializing in the gaming, lodging, and restaurant/retail
industries. During fiscal 2005, GTECH was awarded online lottery
contracts in Missouri, Thailand, Mexico, Finland, Switzerland, and
Germany (Thuringen). ONCE in Spain ordered a total of 12,000
additional handhelds terminals, adding to the existing base of
7,000 handhelds. Singapore Pools also signed a five- year contract
with GTECH for ES Connect(TM) and ES Connect(TM) B2B. In addition,
lottery contracts were extended in Minnesota, Oregon, Colorado,
Luxembourg, South Australia, and Turkey. Also during the fiscal
year, customers in Atlantic (Canada), Jamaica, and Italy awarded
GTECH contracts to supply video lottery (or gaming) central system
solutions and related services. In December, the Multi State
Lottery Association (MUSL) selected GTECH to supply equipment and
service for the first ever multi-vendor, multi-state video lottery
Wide Area Progressive (WAP) solution. Spielo was also selected to
provide the Oregon Lottery with approximately 2,000 PowerStation
5(TM) VLTs. Shortly after the close of the fiscal year, GTECH was
chosen to supply the video central control system by the
Pennsylvania Department of Revenue in a highly competitive
procurement process. GTECH received contracts for Instant Ticket
Vending Machines (ITVMs) from lotteries in Virginia, Illinois,
Washington, and Maine, further validating the Interlott brand.
Moreover, the Arizona and New Mexico lotteries extended the
Company's ITVM contracts for three years and two years,
respectively. Also in the year, GTECH successfully implemented new
online systems for lotteries in Tennessee, Florida, Germany
(WestLotto), and Sri Lanka. In the Commercial Services vertical,
GTECH continued to expand its services offerings around the globe.
GTECH's subsidiary PolCard exceeded expectations on all fronts,
signing on with three new bank customers and three additional
national merchant accounts. In the third quarter of the year, GTECH
acquired BillBird, a leading bill payment and prepay company in
Poland. Since that time, BillBird has increased transactions per
retailer 21%, and grown the overall retail base from 1,849 to
approximately 6,600 VIA(TM) branded retail points-of-presence.
Additionally, GTECH began selling prepaid mobile phone top-ups
through lottery terminals in Barbados and in Lithuania. In Trinidad
and Tobago, the sale of prepaid mobile phone top-ups and bill
payments also commenced. "GTECH scored major successes across all
three vertical markets: Lottery, Gaming Solutions, and Commercial
Services, in fiscal 2005," continued Mr. Turner. "All told, we won
a record 32 new contracts, including extensions and re-bids, the
total contract revenue value of which is estimated to be between
$635 million and $690 million." Fiscal 2005 was a year of major
strategic progress, as well, with successful acquisitions in all
three vertical markets. "In addition to BillBird, we strengthened
our lottery presence in the Caribbean with the acquisition of
LILHCo, and our Gaming Solutions strategy took a big leap forward
when we entered into an agreement with the Gauselmann Group of
Germany to purchase a 50 percent controlling equity interest in
Atronic, one of the world's leading video slot machine
manufacturers," said Mr. Turner. Certain statements contained in
this press release are forward looking statements within the
meaning of the United States Private Litigation Reform Act of 1995.
We identify forward looking statements by words such as "may,"
"will," "should," "could," "expect," "plan," "anticipate,"
"intend," "believe," "estimate," "continue," "project," or similar
words that refer to the future. Such statements include, without
limitation, statements related to: (i) the future prospects for and
stability of the lottery industry and other businesses in which we
are engaged or expect to be engaged, (ii) our future operating and
financial performance (including, without limitation, expected
future growth in revenues, profit margins and earnings per share),
(iii) our ability to retain existing business and to obtain and
retain new business; (iv) our ability to realize the anticipated
benefits of our acquisitions and (v) the results and effects of
legal proceedings. Such forward looking statements reflect
management's assessment based on information currently available,
but are not guarantees and are subject to risks and uncertainties
that could cause actual results to differ materially from those
contemplated in the forward looking statements. These risks and
uncertainties include, but are not limited to, those set forth
above, in our subsequent press releases and on reports by the
Company on Forms 10-K, 10-Q and 8-K, and other reports and filings
with the Securities and Exchange Commission, as well as risks and
uncertainties respecting: (i) government regulations and other
actions affecting the online lottery industry could have a negative
effect on our business and sales; (ii) we may be subject to adverse
determinations in legal proceedings (including previously announced
legal proceedings in Brazil) which could result in substantial
monetary judgments or reputational damage; (iii) our lottery
operations are dependent upon our continued ability to retain and
extend our existing contracts and win new contract; (iv) slow
growth or declines in sales of online lottery goods and services
could lead to lower revenues and cash flows; (v) we derive over
half of our revenues from foreign jurisdictions (including over
7.4% in fiscal 2005 from Brazilian operations) and are subject to
the economic, political and social instability risks of doing
business in foreign jurisdictions; (vi) our results of operations
are exposed to foreign currency exchange rate fluctuations which
could result in lower revenues, net income and cash flows when such
results are translated into U.S. Dollar accounts; (vii) we have a
concentrated customer base and the loss of any of our larger
customers (or lower sales from any of these customers) could lead
to lower revenue; (viii) our quarterly operating results may
fluctuate significantly; (ix) we operating in a highly competitive
environment and increased competition may cause us to experience
lower net cash flows or to lose contracts; (x) we are subject to
substantial penalties for failure to perform under our contracts;
(xi) we may not be able to respond to technological changes or to
satisfy future technology demands of our customers in which case we
could fall behind our competitors; (xii) if we are unable to manage
potential risks related to acquisitions, our business and growth
prospects could suffer; (xiii) expansion of the gaming industry
faces opposition which could limit our access to some markets;
(xiv) our business prospects and future success depend upon our
ability to attract and retain qualified employees; (xv) our
business prospects and future success rely heavily upon the
integrity of our employees and executives and the security of our
systems; (xvi) our dependence on certain suppliers creates a risk
of implementation delays if the supply contract is terminated or
breached, and any delays may result in substantial penalties and
(xvii) our non-lottery ventures, which are an increasingly
important aspect of our business, may fail. GTECH, a leading global
information technology company with over $1 billion in revenues and
5,300 people in over 50 countries, provides software, networks, and
professional services that power high-performance, transaction
processing solutions. The Company's core market is the lottery
industry, with a growing presence in commercial gaming technology
and financial services transaction processing. For more information
about the Company, please visit GTECH's website at
http://www.gtech.com/. Consolidated financial statements to follow:
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES CONSOLIDATED INCOME
STATEMENTS Fourth Quarter Fiscal Year Ended February 26, February
28, 2005 2004 (Dollars in thousands, except per share amounts)
Revenues: Services $264,298 $264,689 Sales of products 73,570
14,887 337,868 279,576 Costs and expenses: Costs of services
164,897 146,246 Costs of sales 53,996 8,693 218,893 154,939 Gross
profit 118,975 124,637 Selling, general and administrative 29,989
29,594 Research and development 13,818 15,896 Operating expenses
43,807 45,490 Operating income 75,168 79,147 Other income
(expense): Interest income 1,657 2,030 Equity in earnings of
unconsolidated affiliates 403 116 Other expense (1,175) (1,448)
Interest expense (7,470) (3,922) (6,585) (3,224) Income before
income taxes 68,583 75,923 Income taxes 24,740 28,092 Net income
$43,843 $47,831 Basic earnings per share $0.38 $0.40 Diluted
earnings per share $0.34 $0.36 Weighted average shares outstanding
- basic 115,555 118,280 Weighted average shares outstanding -
diluted 131,075 134,735 Dividends per share - common stock $0.085
$0.085 GTECH HOLDINGS CORPORATION AND SUBSIDIARIES CONSOLIDATED
INCOME STATEMENTS Fiscal Year Ended February 26, February 28,
February 22, 2005 2004 2003 (Dollars in thousands, except per share
amounts) Revenues: Services $1,017,683 $957,471 $868,896 Sales of
products 239,552 93,859 109,894 1,257,235 1,051,330 978,790 Costs
and expenses: Costs of services 616,633 537,839 535,041 Costs of
sales 157,974 59,226 78,943 774,607 597,065 613,984 Gross profit
482,628 454,265 364,806 Selling, general and administrative 117,253
109,092 96,130 Research and development 52,559 57,318 42,852
Special credit - - (1,121) Operating expenses 169,812 166,410
137,861 Operating income 312,816 287,855 226,945 Other income
(expense): Interest income 4,615 5,733 3,837 Equity in earnings of
unconsolidated affiliates 2,812 6,236 7,376 Other income 5,356
1,889 2,175 Interest expense (19,213) (10,919) (11,267) (6,430)
2,939 2,121 Income before income taxes 306,386 290,794 229,066
Income taxes 109,992 107,594 87,045 Net income $196,394 $183,200
$142,021 Basic earnings per share $1.68 $1.57 $1.24 Diluted
earnings per share $1.50 $1.40 $1.11 Weighted average shares
outstanding - basic 116,739 116,464 114,162 Weighted average shares
outstanding - diluted 132,559 132,625 129,509 Dividends per share -
common stock $0.34 $0.255 $- GTECH HOLDINGS CORPORATION AND
SUBSIDIARIES CONSOLIDATED BALANCE SHEETS February 26, February 28,
2005 2004 ASSETS (Dollars in thousands) CURRENT ASSETS: Cash and
cash equivalents $94,446 $129,339 Investment securities
available-for-sale 196,825 221,850 Trade accounts receivable, net
168,706 118,902 Sales-type lease receivables 3,461 7,705 Refundable
performance deposit 8,000 - Inventories 61,135 76,784 Deferred
income taxes 31,435 34,396 Other current assets 26,646 24,426 TOTAL
CURRENT ASSETS 590,654 613,402 SYSTEMS, EQUIPMENT AND OTHER ASSETS
RELATING TO CONTRACTS, net 720,438 591,362 GOODWILL, net 331,022
188,612 PROPERTY, PLANT AND EQUIPMENT, net 74,558 57,576 INTANGIBLE
ASSETS, net 70,839 28,231 REFUNDABLE PERFORMANCE DEPOSIT 12,000
20,000 SALES-TYPE LEASE RECEIVABLES 4,756 17,653 OTHER ASSETS
50,874 42,295 TOTAL ASSETS $1,855,141 $1,559,131 LIABILITIES AND
SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $99,234
$80,004 Accrued expenses 54,227 47,428 Employee compensation 21,862
33,981 Advance payments from customers 42,865 104,128 Deferred
revenue and advance billings 29,705 14,459 Income taxes payable
16,499 12,394 Taxes other than income taxes 16,572 19,459
Short-term borrowings 334 - Current portion of long-term debt 2,476
106,319 TOTAL CURRENT LIABILITIES 283,774 418,172 LONG-TERM DEBT,
less current portion 726,329 463,215 OTHER LIABILITIES 83,260
53,736 DEFERRED INCOME TAXES 106,010 61,719 COMMITMENTS AND
CONTINGENCIES - - SHAREHOLDERS' EQUITY: Preferred Stock, par value
$.01 per share - 20,000,000 shares authorized, none issued - -
Common Stock, par value $.01 per share - 200,000,000 shares
authorized, 116,551,144 and 184,590,808 shares issued; 115,006,751
and 118,395,168 shares outstanding at February 26, 2005 and
February 28, 2004, respectively 1,166 923 Additional paid-in
capital 278,204 266,320 Accumulated other comprehensive loss
(43,227) (70,508) Retained earnings 455,537 839,270 691,680
1,036,005 Less cost of 1,544,393 and 66,195,640 shares in treasury
at February 26, 2005 and February 28, 2004, respectively (35,912)
(473,716) 655,768 562,289 TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $1,855,141 $1,559,131 GTECH HOLDINGS CORPORATION AND
SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Fiscal Year
Ended February 26, February 28, February 22, 2005 2004 2003
(Dollars in thousands) OPERATING ACTIVITIES Net income $196,394
$183,200 $142,021 Adjustments to reconcile net income to net cash
provided by operating activities: Depreciation 145,999 115,324
133,452 Intangibles amortization 12,616 3,735 4,733 Deferred income
taxes 34,740 59,457 (1,567) Tax benefit related to stock award
plans 11,254 10,432 8,037 Minority interest 3,799 4,502 578 Equity
in earnings of unconsolidated affiliates, net of dividends received
3,461 1,672 316 Gain on sale of investment (10,924) - - Non-cash
gain from consolidation of West Greenwich Technology Associates,
L.P. - (5,292) - Termination of interest rate swaps - - 11,357
Other 16,438 10,726 2,740 Changes in operating assets and
liabilities: Trade accounts receivable (48,207) 3,788 (12,007)
Inventories 28,522 3,030 14,387 Accounts payable 14,248 2,186
13,734 Employee compensation (15,118) (4,231) (1,022) Advance
payments from customers (33,994) 51,601 (10,109) Deferred revenue
and advance billings 15,037 (2,979) 6,954 Income taxes payable
11,484 (27,649) 5,590 Other assets and liabilities (10,540) 5,565
13,062 NET CASH PROVIDED BY OPERATING ACTIVITIES 375,209 415,067
332,256 INVESTING ACTIVITIES Acquisitions (net of cash acquired)
(200,730) (74,442) - Purchases of systems, equipment and other
assets relating to contracts (245,592) (268,010) (155,556)
Purchases of available-for-sale investment securities (246,975)
(242,050) - Maturities and sales of available- for-sale investment
securities 272,000 20,200 - Proceeds from sale of investments
11,773 - 2,560 Purchases of property, plant and equipment (12,875)
(12,772) (5,612) Increase in restricted cash (5,112) - -
Investments in and advances to unconsolidated subsidiaries (2,071)
(2,885) - Refundable performance deposit - (20,000) - License fee -
(12,500) - NET CASH USED FOR INVESTING ACTIVITIES (429,582)
(612,459) (158,608) FINANCING ACTIVITIES Net proceeds from issuance
of long- term debt 343,254 252,588 - Principal payments on
long-term debt (167,692) (33,293) (47,416) Purchases of treasury
stock (120,658) - (64,032) Dividends paid (39,830) (29,977) -
Premiums and fees paid in connection with the early retirement of
debt (10,610) (731) (3,434) Proceeds from stock options 13,546
23,943 16,867 Other (505) (6,324) 1,822 NET CASH PROVIDED BY (USED
FOR) FINANCING ACTIVITIES 17,505 206,206 (96,193) Effect of
exchange rate changes on cash 1,975 4,351 3,624 INCREASE (DECREASE)
IN CASH AND CASH EQUIVALENTS (34,893) 13,165 81,079 Cash and cash
equivalents at beginning of year 129,339 116,174 35,095 CASH AND
CASH EQUIVALENTS AT END OF YEAR $94,446 $129,339 $116,174
DATASOURCE: GTECH Holdings Corporation CONTACT: Robert K. Vincent,
Public Affairs of GTECH Corporation, 401-392-7452 Web site:
http://www.gtech.com/
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