GTK Gtech

GTECH Announces Strong Second Quarter Results WEST GREENWICH, R.I., Sept. 21 /PRNewswire-FirstCall/ -- GTECH Holdings Corporation (NYSE:GTK) today announced second quarter earnings for fiscal year 2005 ended August 28, 2004. "It was yet another quarter of steady growth and profitability for GTECH," said GTECH President and Chief Executive Officer W. Bruce Turner. "Total revenues grew approximately 17 percent, quarter-over-quarter, driven by continued improvements in same-store sales, the benefit of recent acquisitions, and strong product sales. In addition to a solid financial performance, we had a successful quarter across all three GTECH vertical markets -- lottery, gaming solutions, and commercial services." "We are pleased with the continued strength of our core business and the progress we have made in integrating our recent acquisitions," said GTECH Senior Vice President and Chief Financial Officer Jaymin B. Patel. "We are excited about the opportunities we see in each of the markets we serve, and based upon our current outlook, we are confident we can achieve our goals and objectives in the current fiscal year and beyond." Operating Results Earnings and dividends per share for the three and six month periods of the prior year 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. Revenues for the second quarter of fiscal 2005 were $323.5 million, up 16.7% over revenues of $277.2 million in the second quarter of fiscal 2004. Net income was $53.1 million, or $0.40 per diluted share, up 9.5% over net income of $48.5 million, or $0.37 per diluted share, for the same period last year. Revenues for the first six months of fiscal 2005 were $603.7 million, up 16.8% over revenues of $516.8 million in the first six months of fiscal 2004. Net income was $106.7 million, or $0.80 per diluted share, up 19.2% over net income of $89.5 million, or $0.72 per diluted share, for the same period last year. Net income in the first six months of fiscal 2005 includes a net, one- time, after-tax gain of $6.4 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 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 six months of fiscal 2005, the Company generated $171.8 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 $192.4 million, and to purchase systems, equipment and other assets relating to contracts of $113.0 million. In addition, the Company repaid the remaining $90.0 million of its 7.87% Senior Notes; repurchased $82.8 million, or 3,649,500 shares, of the Company's common stock; and paid cash dividends of $20.1 million. At the end of the fiscal 2005 second quarter, GTECH had $15.0 million of borrowings under its $300 million credit facility. Financial Outlook The Company provided guidance for the full year and third quarter of fiscal 2005. For the fiscal year ending February 26, 2005, GTECH expects service revenue growth in the range of 5% to 7%, and product sales in the range of $210 million to $220 million. The Company continues to expect service profit margins to be in the range of 40% to 42%, and product sale profit margins to be in the range of 36% to 38%. The Company expects the effective tax rate for the fiscal year to be in the range of 35% to 36%, compared to 37% reported in the first half of the fiscal year. It expects the most significant portion of the rate reduction will take affect in the third quarter. Based upon the results of the first half of the fiscal year and the current outlook, it continues to expect earnings per share for fiscal 2005 to be in the range of $1.43 to $1.48 on a fully-diluted basis, reflecting the two-for-one stock split that occurred on July 30, 2004. For the third quarter of fiscal 2005, ending November 27, 2004, the Company expects service revenue growth in the range of 6% to 8%, and product sales in the range of $55 million to $65 million. The Company expects service margins in the range of 38% to 40%, and product margins in the range of 37% to 39%. It expects the effective tax rate for the quarter to be approximately 33%. Accordingly, the Company expects earnings per share to be in the range of $0.33 to $0.36 per share for the quarter. This compares with $0.35 reported in the same period last year, which included a one-time, after-tax, non-cash gain of $3.3 million, or $0.03 per diluted share, associated with the consolidation of the partnership that owns the Company's headquarters facility in Rhode Island. Second Quarter Highlights In the second quarter, GTECH continued to strengthen its market leadership in the core lottery business. Internationally, the Company was chosen to provide 5,000 additional handheld lottery terminals to Organizacion Nacional de Ciegos Espanoles (ONCE) in Spain, following a previous order of 7,000 handheld terminals also awarded to GTECH by ONCE in the second quarter. In addition, Cogetech, a joint venture in which GTECH is the technology and services provider, was named a successful applicant for a five-year license to operate a gaming machine network and central system in Italy. The Company also signed a long-term integrated services contract to provide a complete video lottery solution in Jamaica. In Mexico, GTECH's original contract award with Pronosticos para la Asistencia Publica was reinstated in August, and the new six-year integrated services contract was ultimately signed by both parties in early September 2004. Domestically, GTECH signed a three-year contract extension in Oregon and was awarded a new Instant Ticket Vending Machine (ITVM) contract in Maine. On the commercial services side, GTECH began selling prepaid mobile phone top-ups through its 200 lottery terminals in Barbados in June 2004. The Company also launched bill payment services at approximately 700 terminals throughout Poland utilizing the PolCard network. Also in the quarter, GTECH unveiled GamePoint(TM), the Company's new all- in-one instant and online lottery terminal solution. The innovative GamePoint terminal dispenses both instant and online tickets, combining GTECH's world- leading online expertise and Interlott's instant ticket self-service leadership. "In total, we secured between $220 million and $240 million in total incremental future revenues this last quarter," continued Mr. Turner. After the close of the quarter, GTECH signed a three-year contract extension with the Minnesota State Lottery to commence on February 10, 2008. In addition, to advance its commercial services strategy, the Company recently announced it had acquired BillBird S.A., the leading provider of electronic bill payment services in Poland. Other Business Developments Sri Lanka GTECH's customer in Sri Lanka, the Mahapola Higher Education Scholarship Trust Fund (MTF), was recently notified by the Supreme Court of the Democratic Socialist Republic of Sri Lanka that it may resume with the implementation of its lottery games in the country. In March 2004, lawsuits were filed by competitors challenging GTECH's contract award and thus delayed the implementation of the instant ticket and online games in Sri Lanka. All such lawsuits have been settled, without any payment by GTECH, and have been dismissed. 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. The Company identifies forward looking statements by words such as "may," "will," "should," "could," "expect," "plan," "anticipate," "intend," "believe," "estimate," "continue," or similar words that refer to the future. 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/. GTECH HOLDINGS CORPORATION AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS (Unaudited) Three Months Ended August 28, August 23, 2004 2003 (Dollars in thousands, except per share amounts) Revenues: Services $248,114 $238,019 Sales of products 75,401 39,228 323,515 277,247 Costs and expenses: Costs of services 148,481 132,805 Costs of sales 43,874 28,810 192,355 161,615 Gross profit 131,160 115,632 Selling, general and administrative 29,889 27,051 Research and development 12,647 14,106 Operating expenses 42,536 41,157 Operating income 88,624 74,475 Other income (expense): Interest income 981 1,021 Equity in earnings of unconsolidated affiliates 293 2,691 Other income (expense) (1,924) 465 Interest expense (3,719) (1,705) (4,369) 2,472 Income before income taxes 84,255 76,947 Income taxes 31,174 28,471 Net income $53,081 $48,476 Basic earnings per share $0.45 $0.42 Diluted earnings per share $0.40 $0.37 Weighted average shares outstanding - basic 117,070 115,836 Weighted average shares outstanding - diluted 132,743 131,815 Dividends per share - common stock $0.085 $0.085 GTECH HOLDINGS CORPORATION AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS (Unaudited) Six Months Ended August 28, August 23, 2004 2003 (Dollars in thousands, except per share amounts) Revenues: Services $501,440 $461,557 Sales of products 102,280 55,275 603,720 516,832 Costs and expenses: Costs of services 295,774 259,602 Costs of sales 59,791 37,439 355,565 297,041 Gross profit 248,155 219,791 Selling, general and administrative 57,524 51,331 Research and development 25,734 28,496 Operating expenses 83,258 79,827 Operating income 164,897 139,964 Other income (expense): Interest income 2,316 2,209 Equity in earnings of unconsolidated affiliates 1,599 4,620 Other income (expense) 8,601 (715) Interest expense (8,055) (4,011) 4,461 2,103 Income before income taxes 169,358 142,067 Income taxes 62,662 52,565 Net income $106,696 $89,502 Basic earnings per share $0.91 $0.78 Diluted earnings per share $0.80 $0.72 Weighted average shares outstanding - basic 117,848 114,826 Weighted average shares outstanding - diluted 133,860 125,988 Dividends per share - common stock $0.17 $0.085 GTECH HOLDINGS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) August 28, February 28, 2004 2004 ASSETS (Dollars in thousands) CURRENT ASSETS: Cash and cash equivalents $30,267 $129,339 Investment securities available-for- sale - 221,850 Trade accounts receivable, net 134,449 118,902 Sales-type lease receivables 7,848 7,705 Inventories 94,025 76,784 Deferred income taxes 32,559 34,396 Other current assets 31,868 24,426 TOTAL CURRENT ASSETS 331,016 613,402 SYSTEMS, EQUIPMENT AND OTHER ASSETS RELATING TO CONTRACTS, net 649,800 591,362 GOODWILL, net 324,916 188,612 PROPERTY, PLANT AND EQUIPMENT, net 66,484 57,576 INTANGIBLE ASSETS, net 72,614 28,231 REFUNDABLE PERFORMANCE DEPOSIT 20,000 20,000 SALES-TYPE LEASE RECEIVABLES 13,664 17,653 OTHER ASSETS 43,858 42,295 TOTAL ASSETS $1,522,352 $1,559,131 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $73,344 $80,004 Accrued expenses 50,881 47,428 Employee compensation 19,798 33,981 Advance payments from customers 70,955 104,128 Deferred revenue and advance billings 32,159 14,459 Income taxes payable 27,173 12,394 Taxes other than income taxes 19,443 19,459 Current portion of long-term debt 4,848 106,319 TOTAL CURRENT LIABILITIES 298,601 418,172 LONG-TERM DEBT, less current portion 474,099 463,215 OTHER LIABILITIES 79,265 53,736 DEFERRED INCOME TAXES 88,233 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; 115,621,098 and 118,395,168 shares outstanding at August 28, 2004 and February 28, 2004, respectively (shares adjusted to reflect July 2004 two-for-one stock split and treasury stock retirement) 1,166 923 Additional paid-in capital 272,935 266,320 Accumulated other comprehensive loss (69,369) (70,508) Retained earnings 396,629 839,270 601,361 1,036,005 Less cost of 930,046 and 66,195,640 shares in treasury at August 28, 2004 and February 28, 2004, respectively (shares adjusted to reflect July 2004 two-for-one stock split and treasury stock retirement) (19,207) (473,716) 582,154 562,289 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,522,352 $1,559,131 GTECH HOLDINGS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended August 28, August 23, 2004 2003 (Dollars in thousands) OPERATING ACTIVITIES Net income $106,696 $89,502 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 68,504 51,924 Intangibles amortization 4,510 1,609 Deferred income taxes benefit 13,904 - Tax benefit related to stock award plans 6,615 10,696 Net charge associated with the early retirement of debt 751 - Gain on sale of investment (10,924) - Other 7,977 3,612 Changes in operating assets and liabilities: Trade accounts receivable (11,894) 9,769 Inventories (5,255) 14,839 Accounts payable (9,111) (3,723) Employee compensation (15,996) (8,437) Advance payments from customers (5,904) 10,066 Deferred revenue and advance billings 17,700 (4,610) Income taxes payable 15,664 (3,858) Other assets and liabilities (11,480) (935) NET CASH PROVIDED BY OPERATING ACTIVITIES 171,757 170,454 INVESTING ACTIVITIES Acquisitions (net of cash acquired) (192,402) (41,023) Purchases of systems, equipment and other assets relating to contracts (113,011) (143,774) Purchases of available-for-sale investment securities (50,150) - Maturities and sales of available- for-sale investment securities 272,000 - Proceeds from sale of investment 11,773 - Purchases of property, plant and equipment (6,359) (6,285) Increase in restricted cash (5,112) - Investments in and advances to unconsolidated subsidiaries (1,435) (1,185) License fee - (12,500) NET CASH USED FOR INVESTING ACTIVITIES (84,696) (204,767) FINANCING ACTIVITIES Net proceeds from issuance of long- term debt 15,000 1,409 Principal payments on long-term debt (92,249) (2,146) Purchases of treasury stock (82,808) - Redemption premium paid in connection with the early retirement of debt (10,610) - Dividends paid (20,135) (9,883) Proceeds from stock options 4,966 21,101 Other 739 (484) NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (185,097) 9,997 Effect of exchange rate changes on cash (1,036) 2,464 DECREASE IN CASH AND CASH EQUIVALENTS (99,072) (21,852) Cash and cash equivalents at beginning of period 129,339 116,174 CASH AND CASH EQUIVALENTS AT END OF PERIOD $30,267 $94,322 Contact: Robert K. Vincent Public Affairs GTECH Corporation 401-392-7452 DATASOURCE: GTECH CONTACT: Robert K. Vincent, Public Affairs, GTECH Corporation, +1-401-392-7452 Web site: http://www.gtech.com/

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