GTECH Announces Third Quarter Results Company Offers Preliminary
Outlook for Fiscal Year 2005 WEST GREENWICH, R.I., Dec. 16
/PRNewswire-FirstCall/ -- GTECH Holdings Corporation today
announced third quarter earnings for fiscal year 2004 ended
November 22, 2003. "GTECH's third quarter results reflect continued
strength in the core business, with service revenues up by a
healthy 11 percent," said GTECH President and CEO W. Bruce Turner.
"A substantial amount of that growth was driven by stronger same
store sales and new customers in the core business," continued Mr.
Turner. "In fact, same store lottery sales, on a global basis, have
grown by approximately five percent or more every quarter for the
last six consecutive quarters. Our recent PolCard and Interlott
acquisitions also played a part, contributing a total of $11
million of service revenues in the quarter." Commenting on the
quarter, GTECH Senior Vice President and Chief Financial Officer
Jaymin B. Patel said, "We are pleased with the continued
improvement in the underlying performance of the business,
particularly with the substantial increase in service revenues and
the continued improvements in profit margins." "At this stage of
the planning process, we are pleased that the outlook for fiscal
2005 is shaping up well, giving us confidence that 2005 will be
another solid year in terms of revenue growth, profitability, and
value creation for our shareholders," continued Mr. Patel.
Operating Results Revenues for the third quarter of fiscal 2004
totaled $254.9 million, comparable to revenues of $256.5 million in
the third quarter of fiscal 2003. Net income was $45.9 million, or
$0.69 per diluted share, up 39.7% over net income of $32.8 million,
or $0.57 per diluted share, for the same period last year. Net
income for the fiscal 2004 third quarter includes a one-time,
after-tax, non-cash gain of $3.3 million, or $0.05 per diluted
share, associated with the consolidation of the partnership that
owns the Company's corporate headquarters in West Greenwich, Rhode
Island. Revenues for the first nine months of fiscal 2004 were
$771.8 million, up 8.9% over revenues of $708.8 million in the
first nine months of fiscal 2003. Net income was $135.4 million, or
$2.12 per diluted share, up 35.3% over net income of $100.1
million, or $1.71 per diluted share, for the same period last year.
Cash Flow and Investments During the first nine months of fiscal
2004, GTECH generated $309.9 million of cash from operations which,
along with cash on hand, was used to fund investing activities
totaling $328.2 million, including the acquisitions of PolCard and
Interlott. In addition, during the most recent quarter, the Company
issued $250 million of 4.75% Senior Notes. At the end of the fiscal
2004 third quarter, the Company had no borrowings under its credit
facility. During the fiscal 2004 third quarter, GTECH paid its
second quarterly cash dividend of $0.17 per share, for a total of
$10.0 million. Financial Outlook The Company also updated guidance
for the fiscal year ending February 28, 2004. The Company expects
service revenue growth in the range of 8% to 9%. The Company
expects product sales to be in the range of $105 million to $110
million. The Company expects service margins to be in the range of
41% to 43%, and product margins in the range of 33% to 35%. Based
on the current outlook, GTECH expects earnings per share for fiscal
2004 to be in the range of $2.75 to $2.80 on a fully diluted basis,
including $0.05 per diluted share, associated with the $3.3 million
after tax non-cash gain from the consolidation of the partnership
that owns the Company's corporate headquarters in West Greenwich,
Rhode Island. Earnings per diluted share for the fourth quarter are
expected to be in the range of $0.63 to $0.68. For fiscal 2005,
ending February 26, 2005, the Company expects total revenue growth
of approximately 20% to 21%, including contributions from PolCard,
Interlott, and Spielo. The Company expects service revenue growth
in the range of 7% to 8%, reflecting a 4% to 6% increase in same
store sales, net contract wins, and the impact of acquisitions,
offset by a number of factors, including contractual rate changes
and fluctuations in foreign exchange rates against the U.S. Dollar.
The Company expects product sales in the range of $230 million to
$250 million, including approximately $70 million to $80 million
from acquisitions. The Company expects to maintain service margins
in the range of 41% to 43% and expects product margins in the range
of 36% to 38%. Based upon a diluted share estimate of 67.4 million,
the Company believes that earnings per share will be in the range
of $2.95 to $3.05 for fiscal 2005. Third Quarter Highlights In the
third quarter of fiscal 2004, GTECH continued to strengthen its
market leadership in the core lottery market. The Company was
awarded a seven-year integrated services contract with the
Tennessee Lottery to provide an online lottery system, terminals,
and a telecommunications network. GTECH was also awarded a six-year
contract to provide a new online and instant ticket lottery system,
terminals, and a telecommunications network for the Florida
Lottery. Both wins were the result of public, competitive
procurements. Additionally, GTECH signed a 12-year contract
extension to provide online lottery products and services to SAZKA,
a.s., the operator of lottery and betting games in the Czech
Republic, and extended its relationship with lottery customers in
Denmark and Portugal. In addition, GTECH advanced its position in
the video lottery industry when the Company announced its intention
to acquire Spielo, a leading video lottery solutions provider. It
is expected that this acquisition will be completed in the second
quarter of GTECH's fiscal year 2005. "In the third quarter alone,
we won five contracts," said Mr. Turner. "There were two new
contracts, in Tennessee and Florida, and contract extensions in
Denmark, the Czech Republic, and Portugal. We expect that these
contracts will result in more than $500 million in aggregate
revenue to the Company over the respective contract terms. It is
also clear that our technology investments have had a major impact
on our competitiveness and success in winning new lottery
contracts," continued Mr. Turner. "In four of our last five
procurements, GTECH received the highest technical scores of any
vendor." Other Business Developments In the third quarter, GTECH
successfully completed the acquisition of Interlott Technologies,
Inc., a leading provider of instant ticket vending machines (ITVMs)
for the lottery industry worldwide. After the close of the quarter,
GTECH signed a 10-year contract to provide online, instant, and
passive lottery technology and management services in Sri Lanka,
which the Company expects will contribute over $100 million in
revenue over the contract's term. Certain statements contained in
this press release are forward looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. Such statements
include, without limitation, statements relating to the prospects
and financial outlook for the Company, which reflect management
assumptions regarding: (i) the future prospects for and stability
of the lottery industry and other businesses in which the Company
is engaged or expects to be engaged, (ii) the future operating and
financial performance of the Company (including, without
limitation, expected future growth in revenues, profit margins and
earnings per share), and (iii) the ability of the Company to retain
existing business and to obtain and retain new business. 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 the Company's 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) the potential impact of extensive and evolving government
regulations upon the Company's business; (ii) the ability of the
Company to continue to retain and extend its existing contracts and
win new contracts; (iii) the possibility of slower than expected
growth or declines in sales of lottery goods and services by the
Company or the Company's customers; (iv) exposure to foreign
currency fluctuations; (v) risks and uncertainties inherent in
doing business in foreign jurisdictions; (vi) the relatively large
percentage of the Company's revenues attributable to a relatively
small number of the Company's customers; (vii) the possibility of
significant fluctuation of quarterly operating results; (viii) the
intensity of competition in the lottery industry; (ix) the
possibility of substantial penalties under and/or termination of
the Company's contracts; (x) the ability of the Company to respond
to technological change and to satisfy the future technological
demands of its customers; (xi) opposition to expansion of lottery
and gaming; (xii) the Company's ability to attract and retain key
employees; and (xiii) the possibility of adverse determinations in
pending legal proceedings. GTECH, a leading global information
technology company with $1 billion in revenues and approximately
4,900 people in 43 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 financial services transaction
processing. For more information about the Company, please visit
GTECH's website at http://www.gtech.com/. Contact: Robert K.
Vincent Public Affairs GTECH Corporation 401-392-7452 Consolidated
statement of operations to follow: CONSOLIDATED INCOME STATEMENTS
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES (Unaudited) Three
Months Ended November 22, November 23, 2003 2002 (Dollars in
thousands, except per share amounts) Revenues: Services $231,225
$207,784 Sales of products 23,697 48,682 254,922 256,466 Costs and
expenses: Costs of services 131,991 129,122 Costs of sales 13,094
39,070 145,085 168,192 Gross profit 109,837 88,274 Selling, general
and administrative 28,167 24,358 Research and development 12,926
10,903 Operating expenses 41,093 35,261 Operating income 68,744
53,013 Other income (expense): Interest income 1,494 1,028 Equity
in earnings of unconsolidated affiliates 1,500 1,406 Other income*
4,052 234 Interest expense (2,986) (2,728) 4,060 (60) Income before
income taxes 72,804 52,953 Income taxes 26,937 20,122 Net income
$45,867 $32,831 Basic earnings per share $0.78 $0.58 Diluted
earnings per share $0.69 $0.57 Weighted average shares outstanding
- basic 58,820 56,981 Weighted average shares outstanding - diluted
66,927 58,062 Dividends per share - common stock $0.17 $- * In the
three months ended November 22, 2003, Other Income includes a $5.3
million non-cash gain relating to the consolidation of the
partnership that owns the Company's corporate headquarters in West
Greenwich, Rhode Island. CONSOLIDATED INCOME STATEMENTS GTECH
HOLDINGS CORPORATION AND SUBSIDIARIES (Unaudited) Nine Months Ended
November 22, November 23, 2003 2002 (Dollars in thousands, except
per share amounts) Revenues: Services $692,782 $643,119 Sales of
products 78,972 65,717 771,754 708,836 Costs and expenses: Costs of
services 391,593 402,999 Costs of sales 50,533 49,426 442,126
452,425 Gross profit 329,628 256,411 Selling, general and
administrative 79,498 70,168 Research and development 41,422 24,575
Operating expenses 120,920 94,743 Operating income 208,708 161,668
Other income (expense): Interest income 3,703 2,847 Equity in
earnings of unconsolidated affiliates 6,120 3,363 Other income*
3,337 1,912 Interest expense (6,997) (8,371) 6,163 (249) Income
before income taxes 214,871 161,419 Income taxes 79,502 61,340 Net
income $135,369 $100,079 Basic earnings per share $2.34 $1.75
Diluted earnings per share $2.12 $1.71 Weighted average shares
outstanding - basic 57,882 57,252 Weighted average shares
outstanding - diluted 64,356 58,529 Dividends per share - common
stock $0.34 $- * In the nine months ended November 22, 2003, Other
Income includes a $5.3 million non-cash gain relating to the
consolidation of the partnership that owns the Company's corporate
headquarters in West Greenwich, Rhode Island. CONSOLIDATED BALANCE
SHEETS GTECH HOLDINGS CORPORATION AND SUBSIDIARIES (Unaudited)
November 22, February 22, 2003 2003 ASSETS (Dollars in thousands)
CURRENT ASSETS: Cash and cash equivalents $320,536 $116,174 Trade
accounts receivable, net 122,718 107,666 Sales-type lease
receivables 7,288 4,400 Inventories 58,852 72,287 Deferred income
taxes 29,410 29,410 Other current assets 27,202 18,660 TOTAL
CURRENT ASSETS 566,006 348,597 SYSTEMS, EQUIPMENT AND OTHER ASSETS
RELATING TO CONTRACTS, net 561,930 410,911 GOODWILL, net 188,809
115,498 OTHER ASSETS 169,232 79,189 TOTAL ASSETS $1,485,977
$954,195 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES:
Accounts payable $74,171 $74,042 Accrued expenses 52,903 51,200
Employee compensation 32,170 37,494 Advance payments from customers
95,856 52,442 Deferred revenue and advance billings 10,075 17,264
Income taxes payable 56,072 54,043 Taxes other than income taxes
28,017 16,020 Short term borrowings 2,379 2,616 Current portion of
long-term debt 9,012 6,992 TOTAL CURRENT LIABILITIES 360,655
312,113 LONG-TERM DEBT, less current portion 557,912 287,088 OTHER
LIABILITIES 51,716 39,428 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 - 150,000,000 shares authorized, 92,296,404
and 92,296,404 shares issued; 59,065,006 and 56,638,331 shares
outstanding at November 22, 2003 and February 22, 2003,
respectively 923 923 Additional paid-in capital 267,759 235,266
Accumulated other comprehensive loss (78,937) (95,488) Retained
earnings 801,204 684,653 990,949 825,354 Less cost of 33,231,398
and 35,658,073 shares in treasury at November 22, 2003 and February
22, 2003, respectively (475,255) (509,788) 515,694 315,566 TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY $1,485,977 $954,195
CONSOLIDATED STATEMENTS OF CASH FLOWS GTECH HOLDINGS CORPORATION
AND SUBSIDIARIES (Unaudited) Nine Months Ended November 22,
November 23, 2003 2002 (Dollars in thousands) OPERATING ACTIVITIES
Net income $135,369 $100,079 Adjustments to reconcile net income to
net cash provided by operating activities: Depreciation 81,449
101,858 Intangibles amortization 2,908 4,051 Tax benefit related to
stock award plans 11,871 7,299 Non-cash gain from consolidation of
West Greenwich Technology Associates, L.P. (5,292) - Termination of
interest rate swaps - 11,357 Deferred income taxes provision -
1,130 Equity in earnings of unconsolidated affiliates, net of
dividends received (263) 559 Other 6,943 5,351 Changes in operating
assets and liabilities: Trade accounts receivable 2,358 11,723
Inventories 22,879 14,944 Advance payments from customers 43,414
5,211 Other assets and liabilities 8,300 17,402 NET CASH PROVIDED
BY OPERATING ACTIVITIES 309,936 280,964 INVESTING ACTIVITIES
Purchases of systems, equipment and other assets relating to
contracts (211,867) (131,221) Acquisitions (net of cash acquired)
(74,174) - Refundable performance deposit (20,000) - License fee
(12,500) - Other (9,691) (1,350) NET CASH USED FOR INVESTING
ACTIVITIES (328,232) (132,571) FINANCING ACTIVITIES Net proceeds
from issuance of long- term debt 252,527 - Principal payments on
long-term debt (31,688) (46,408) Proceeds from stock options 22,068
15,842 Dividends paid (19,928) - Purchases of treasury stock -
(57,424) Tender premiums and fees - (3,434) Other (3,583) 2,926 NET
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 219,396 (88,498)
Effect of exchange rate changes on cash 3,262 2,519 INCREASE IN
CASH AND CASH EQUIVALENTS 204,362 62,414 Cash and cash equivalents
at beginning of period 116,174 35,095 CASH AND CASH EQUIVALENTS AT
END OF PERIOD $320,536 $97,509 DATASOURCE: GTECH Holdings
Corporation CONTACT: Robert K. Vincent, Public Affairs of GTECH
Corporation, +1-401-392-7452 Web site: http://www.gtech.com/
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