GTECH Holdings Corporation Announces Strong First Quarter Results
Full Year Outlook Remains Positive WEST GREENWICH, R.I., June 22
/PRNewswire-FirstCall/ -- GTECH Holdings Corporation (NYSE:GTK)
today announced first quarter earnings for fiscal year 2005 ended
May 29, 2004. "It was a quarter of continued progress at GTECH,
with our financial, operational, and strategic plans all moving
forward as expected," said GTECH President and CEO W. Bruce Turner.
"Both revenue and earnings were in line with our expectations, and
we continued to see steady growth in same-store sales. The first
quarter marked the eighth consecutive quarter of meaningful growth
in same-store sales." "We continue to be encouraged by the positive
trends we have been seeing in the business," said GTECH Senior Vice
President and Chief Financial Officer Jaymin B. Patel. "We are
pleased with the strength of our core business and excited about
the opportunities our new acquisitions offer. Based upon our
current outlook, we are confident we can achieve our goals and
objectives in fiscal 2005 and beyond." Operating Results Revenues
for the first quarter of fiscal 2005 were $280.2 million, up 17.0%
over revenues of $239.6 million in the first quarter of fiscal
2004. Net income was $53.6 million, or $0.80 per diluted share, up
30.7% over net income of $41.0 million, or $0.68 per diluted share,
for the same period last year. Net income in the first quarter of
fiscal 2005 includes a net, one- time, after-tax gain of $6.4
million, or approximately $0.09 per diluted share, associated with
the sale of the Company's 50% interest in Gaming Entertainment
(Delaware) L.L.C., net of charges associated with the early
retirement of the remainder of the Company's 2007 private placement
notes. Cash Flow and Investments During the first quarter of fiscal
2005, the Company generated $85.8 million of cash from operations
which, along with other sources of liquidity, was principally used
to fund the Spielo Manufacturing Incorporated and Leeward Islands
Lottery Holding Company, Inc. acquisitions of $193.0 million, and
to purchase systems, equipment, and other assets relating to
contracts of $53.9 million. In addition, in the first quarter, the
Company repaid the remaining $90.0 million of its 7.87% Senior
Notes; repurchased $28.3 million, or 545,000 shares, of the
Company's common stock; and paid cash dividends of $10.1 million.
At the end of the first quarter of fiscal 2005, GTECH had no
borrowings under its $300.0 million credit facility. Recent
Development This morning, the Company announced that its Board of
Directors approved a 2-for-1 stock split of the Company's common
stock. The stock split will be effected in the form of a stock
dividend to be distributed on July 30, 2004, to shareholders of
record on July 1, 2004, with shareholders receiving one additional
share of common stock for each share held. The Company had
58,993,004 shares of common stock outstanding as of May 29, 2004.
Financial Outlook The Company also revised its guidance upward for
fiscal year ending February 26, 2005. The Company continues to
expect total revenue growth of 20% to 21%, with service revenue
growth in the range of 7% to 9%, and product sales in the range of
$210 million to $220 million. The Company continues to expect that
service profit margins will be in the range of 41% to 43%, and
product sale profit margins to be in the range of 36% to 38%. The
Company now expects a reduction in the effective tax rate from 37%
to 36% for the fiscal year, and it expects to effect this change in
the second half of the fiscal year. Based upon this outlook, the
Company now expects earnings per share for fiscal 2004 to be in the
range of $3.05 to $3.15 on a fully-diluted basis, rather than the
previous guidance of $3.00 to $3.10 per diluted share. For the
second quarter of fiscal 2005 ending August 28, 2004, the Company
expects service revenue growth in the range of 7% to 9%, and
product sales in the range of $80 million to $90 million. The
Company expects service margins in the range of 40% to 42%, and
product margins in the range of 38% to 40%. The Company expects the
effective tax rate to be comparable to the first quarter of fiscal
2005. Accordingly, the Company expects earnings per share to be in
the range of $0.75 to $0.80 per share for the quarter, compared
with $0.74 reported in the same period last year. This guidance is
provided on a pre-split basis. First Quarter Highlights During the
first quarter, GTECH continued to execute against its growth
strategy by signing new contracts and contract extensions both
abroad and domestically. Oeuvre Nationale de Secours
Grande-Duchesse Charlotte, the operator of Loterie Nationale of
Luxembourg, signed a five-year extension with the Company to
provide new lottery terminals, products, and ongoing services
through October 2012. In addition, South Australian Lotteries
Commission (SALC) extended its contract with GTECH through June 26,
2007. Under this extension, GTECH will continue to provide SALC
with software licensing for both online and instant ticket lottery
systems, and a keno game. GTECH's customer in Turkey, Milli
Piyango, also extended its contract with GTECH through November 10,
2005, as did Spain's Loto Catalunya for an additional year through
March 2005. Domestically, the Company was notified of the Virginia
Lottery's intent to award a seven-year contract to Oberthur Gaming
Technologies Corporation (OGT) under which GTECH will be
subcontracted to provide new Instant Ticket Vending Machines
(ITVMs) and management of warehousing and distribution of instant
tickets. The contract, which was recently executed and commenced
earlier this month, includes options to renew for up to three
years. Additionally, GTECH was awarded contracts with the Illinois
Lottery and Washington Lottery for Instant Ticket Dispensing
Machines (ITDMs) and Lottery Product Vending Machines (LPVMs),
respectively. Also in the quarter, GTECH's wholly-owned subsidiary,
Spielo Manufacturing Incorporated, announced that it would provide
the Oregon Lottery with approximately 2,000 PowerStation 5(TM)
video lottery terminals (VLTs). GTECH completed the acquisition of
Spielo in April 2004. In the last month of the quarter, GTECH
closed on the acquisition of Leeward Islands Lottery Holding
Company, a lottery operating company headquartered on the Caribbean
islands of Antigua and St. Croix. "We successfully launched the
online games in Tennessee in April and debuted HotTrax, a new 3D,
animated monitor game, at 50 locations in Rhode Island in late
May," continued Mr. Turner. "HotTrax holds much promise for GTECH
and raises the bar in new game development. It is just one of
several initiatives that will help drive continued growth in
same-store sales." Other initiatives include e-scratch(TM), an
innovative web-based, interactive suite of scratch and reveal
games; the development of new instant online games along the lines
of Extra(TM) and Bingo(TM); as well as branded games, beginning
with the Monopoly brand the Company recently licensed from Hasbro
Properties Group, the intellectual property development arm of
Hasbro, Inc. After the close of the quarter, Organizacion Nacional
de Ciegos Espanoles (ONCE) exercised an option in its existing
agreement with GTECH for the provision of 7,000 additional handheld
lottery terminals for visually-impaired retailers in Spain. This
will bring the total count of hand-held terminals to 14,000 by the
end of the calendar year. Other Business Developments In April,
GTECH was notified that its selection as the apparent successful
vendor to provide equipment and services for a new online lottery
system and associated telecommunications network in Mexico to
Pronosticos para la Asistencia Publica (Pronosticos) was retracted.
As part of a ruling by the Mexican Comptroller Ministry on a
protest filed by unsuccessful competitors, GTECH's bid was declared
non-compliant and disqualified. Subsequently, Pronosticos announced
that it disqualified the sole remaining bidder as also being
non-compliant and formally ended the procurement. GTECH believes
that it submitted a fully compliant bid to Pronosticos that was in
the best interest of the lottery. The Company is pursuing all
appropriate avenues available to contest the Comptroller's decision
in this matter. In the interim, as the incumbent lottery vendor,
GTECH will continue to operate the lottery under its existing
contract. In May, GTECH was notified by Loter�a Electronica de
Puerto Rico of its intent to negotiate a contract to provide
equipment and services for a new online lottery system, terminals,
and associated telecommunications network with another vendor. In
an effort to understand the rationale behind the decision, GTECH
filed a petition with the Court of Appeals to obtain a copy of the
evaluation report, which was withheld by Loteria Electronica. GTECH
also requested, and was granted, a stay of contract negotiations
between Loteria Electronica and the apparent successful vendor. The
Company is currently awaiting the court's decision. 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 and
gaming 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 and gaming industries; (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 over $1 billion in revenues and more than
5,500 people in 45 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/ . CONTACT: Robert K. Vincent Public Affairs
GTECH Corporation 401-392-7452 GTECH HOLDINGS CORPORATION AND
SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS (Unaudited) Three
Months Ended May 29, May 24, 2004 2003 (Dollars in thousands,
except per share amounts) Revenues: Services $253,326 $223,538
Sales of products 26,879 16,047 280,205 239,585 Costs and expenses:
Costs of services 147,293 126,797 Costs of sales 15,917 8,629
163,210 135,426 Gross profit 116,995 104,159 Selling, general and
administrative 27,635 24,280 Research and development 13,087 14,390
Operating expenses 40,722 38,670 Operating income 76,273 65,489
Other income (expense): Interest income 1,335 1,188 Equity in
earnings of unconsolidated affiliates 1,306 1,929 Other income
(expense) 10,525 (1,180) Interest expense (4,336) (2,306) 8,830
(369) Income before income taxes 85,103 65,120 Income taxes 31,488
24,094 Net income $53,615 $41,026 Basic earnings per share $0.90
$0.72 Diluted earnings per share $0.80 $0.68 Weighted average
shares outstanding - basic 59,312 56,904 Weighted average shares
outstanding - diluted 67,489 60,228 Dividends per share - common
stock $0.17 $- GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited) May 29, February 28, 2004
2004 ASSETS (Dollars in thousands) CURRENT ASSETS: Cash and cash
equivalents $60,241 $129,339 Investment securities available-for-
sale 12,145 221,850 Trade accounts receivable, net 130,431 118,902
Sales-type lease receivables 8,201 7,705 Inventories 97,368 76,784
Deferred income taxes 32,314 34,396 Other current assets 29,886
24,426 TOTAL CURRENT ASSETS 370,586 613,402 SYSTEMS, EQUIPMENT AND
OTHER ASSETS RELATING TO CONTRACTS, net 620,700 591,362 GOODWILL,
net 312,676 188,612 PROPERTY, PLANT AND EQUIPMENT, net 63,634
57,576 INTANGIBLE ASSETS, net 97,562 28,231 REFUNDABLE PERFORMANCE
DEPOSIT 20,000 20,000 SALES-TYPE LEASE RECEIVABLES 15,801 17,653
OTHER ASSETS 38,540 42,295 TOTAL ASSETS $1,539,499 $1,559,131
LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts
payable $75,808 $80,004 Accrued expenses 49,465 47,428 Employee
compensation 21,963 33,981 Advance payments from customers 127,238
104,128 Deferred revenue and advance billings 30,628 14,459 Income
taxes payable 21,395 12,394 Taxes other than income taxes 20,171
19,459 Current portion of long-term debt 5,816 106,319 TOTAL
CURRENT LIABILITIES 352,484 418,172 LONG-TERM DEBT, less current
portion 453,463 463,215 OTHER LIABILITIES 55,898 53,736 DEFERRED
INCOME TAXES 89,443 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 - 150,000,000 shares authorized, 92,295,404
and 92,295,404 shares issued; 58,993,004 and 59,197,584 shares
outstanding at May 29, 2004 and February 28, 2004, respectively 923
923 Additional paid-in capital 271,570 266,320 Accumulated other
comprehensive loss (71,836) (70,508) Retained earnings 884,700
839,270 1,085,357 1,036,005 Less cost of 33,302,400 and 33,097,820
shares in treasury at May 29, 2004 and February 28, 2004,
respectively (497,146) (473,716) 588,211 562,289 TOTAL LIABILITIES
AND SHAREHOLDERS' EQUITY $1,539,499 $1,559,131 GTECH HOLDINGS
CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) Three Months Ended May 29, May 24, 2004 2003 (Dollars
in thousands) OPERATING ACTIVITIES Net income $53,615 $41,026
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation 33,379 25,692 Intangibles
amortization 1,633 447 Deferred income taxes benefit 7,237 - Tax
benefit related to stock award plans 5,250 4,415 Gain on sale of
investment (10,924) - Interest rate swap gains (10,103) - Equity in
earnings of unconsolidated affiliates, net of dividends received
(494) (959) Other 2,955 3,284 Changes in operating assets and
liabilities: Trade accounts receivable (6,417) 11,447 Inventories
(10,340) (12,426) Accounts payable (7,020) (2,049) Employee
compensation (13,802) (17,438) Advance payments from customers
22,610 10,941 Deferred revenue and advance billings 16,169 2,920
Income taxes payable 9,899 (2,799) Other assets and liabilities
(7,823) (1,532) NET CASH PROVIDED BY OPERATING ACTIVITIES 85,824
62,969 INVESTING ACTIVITIES Acquisitions (net of cash acquired)
(193,018) - Purchases of systems, equipment and other assets
relating to contracts (53,932) (58,663) Purchases of
available-for-sale investment securities (49,895) - Maturities and
sales of available- for-sale investment securities 259,600 -
Proceeds from sale of investment 11,773 - Other (2,748) (1,186) NET
CASH USED FOR INVESTING ACTIVITIES (28,220) (59,849) FINANCING
ACTIVITIES Net proceeds from issuance of long- term debt 14 1,409
Principal payments on long-term debt (91,239) (866) Proceeds from
stock options 3,508 8,406 Purchases of treasury stock (28,275) -
Dividends paid (10,103) - Other 769 (52) NET CASH PROVIDED BY (USED
FOR) FINANCING ACTIVITIES (125,326) 8,897 Effect of exchange rate
changes on cash (1,376) 3,285 INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (69,098) 15,302 Cash and cash equivalents at beginning
of period 129,339 116,174 CASH AND CASH EQUIVALENTS AT END OF
PERIOD $60,241 $131,476 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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