WEST GREENWICH, RI – (April 12, 2006) – GTECH Holdings Corporation (NYSE: GTK) today announced fourth quarter and year-end earnings for the fiscal year which ended February 25, 2006.
“GTECH delivered solid financial results in both the quarter and the full fiscal year, meeting or exceeding our previous outlook,” said GTECH President and CEO W. Bruce Turner. “In addition, we enjoyed strategic success in each of our verticals by growing our core business, aggressively developing international market opportunities, and leveraging our core competencies into related gaming solutions and transaction-processing business opportunities.”
“GTECH delivered another strong year of operating results and substantial free cash flows, resulting in significant value creation for our shareholders and positioning us well for future successes,” said GTECH Senior Vice President and CFO Jaymin B. Patel.
Revenues for the fourth quarter of fiscal 2006 were $368.3 million, up 9% over revenues of $337.9 million in the fourth quarter of fiscal 2005. Net income was $59.4 million, or $0.45 per diluted share, compared to net income of $43.8 million, or $0.34 per diluted share for the same period last year. For the quarter, service revenues were up 11.3%, reflecting continued strength in same store sales, strong jackpot activity, and higher revenues from Brazil. Product sales were $74.3 million, comparable to the fourth quarter of fiscal 2005. Service margins increased approximately 150 basis points, to 39.1%, driven by the strength in service revenues, partially offset by higher depreciation and amortization expenses. Product margins increased significantly, from 26.6% in the fourth quarter of fiscal 2005 to 45.6% in the most recent quarter, reflecting a change in product mix. The fourth quarter results include one-time costs of $6.1 million associated with the pending transaction with Lottomatica S.p.A. Excluding transaction-related costs, the Company would have reported net income of $65.5 million and fully diluted earnings per share of $0.50.
Revenues for fiscal 2006 were $1.3 billion, up 3.8% over revenues of $1.26 billion in fiscal 2005. Net income was $211.0 million, or $1.63 per diluted share, compared to net income of $196.4 million, or $1.50 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 2006 includes one-time costs of $8.0 million associated with the pending Lottomatica transaction, or $0.06 per diluted share.
Prior year earnings and dividends per share reflect the 2-for-1 common stock split declared in June 2004.
Cash Flow and Investments
During fiscal 2006, the Company generated $429.6 million of cash from operations. This cash was principally used to fund $137.3 million of systems, equipment, and other assets relating to contracts; to purchase an additional 11.681% of POLCARD S.A. for $21.5 million; to repurchase $32.1 million, or 1,326,100 shares of the Company’s common stock; and to pay cash dividends of $41.7 million. At February 25, 2006, the Company had $495.9 million of cash balances and short-term investment securities on hand.
At the end of fiscal 2006, the Company had $494 million available under its senior revolving credit facility.
Business Highlights
During fiscal 2006, GTECH continued to successfully execute against the Company’s strategic objectives of maintaining and expanding the core lottery business, and winning new customers.
Domestically, GTECH signed a seven-year integrated services agreement with the North Carolina Education Lottery (NCEL) for a complete end-to-end online/instant ticket lottery solution. The Company implemented the NCEL in 58 days with approximately 5,000 terminals at startup, making it the fastest instant ticket launch in lottery history.
In addition, GTECH was awarded multi-year online lottery contracts in Washington State and Arizona, and signed an agreement for additional lottery products in California. The Company was also selected as the preferred vendor for new gaming central control systems in Pennsylvania and Louisiana.
In New Jersey, GTECH was selected for a new integrated online/instant lottery system, terminals, and communications network. The award of the New Jersey contract to GTECH is currently being contested by another vendor.
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Internationally, GTECH signed a number of contracts including an agreement to provide a new gaming system and terminals for New Zealand Lotteries Commission, and a five-year agreement to provide equipment and services for the national online lottery in Thailand, through its joint venture LOXLEY GTECH Technology Co. Ltd. The Company also began deploying 2,000 WinWave™ video lottery terminals (VLTs) to Svenska Spel in Sweden. In conjunction with the VLTs, Svenska Spel is also utilizing GTECH’s Enterprise Series™ Video central system, which includes functionality designed to allow lotteries unprecedented flexibility to change denomination and download games remotely.
“All told, GTECH secured new contracts and extensions with 22 customers in fiscal 2006, representing approximately $1 billion in revenues to GTECH over the life of the contracts,” continued Mr. Turner. “These wins are a clear validation of GTECH’s business strategy, our technology, and above all, our understanding of what lotteries, retailers, and players are looking for today and in the future.”
Also during the fiscal year, California joined the Mega Millions multi-state game in an effort to boost lottery ticket sales. California expects Mega Millions to generate approximately $200 million to $300 million in net annual incremental total sales for the Lottery, equating to $2.5 million to $4.0 million in annual incremental revenue to GTECH.
Overseas, the multi-jurisdictional game EuroMillions continues to perform well. For calendar year 2005, per capita sales averaged $0.40 per week. On a year-to-date basis, calendar year 2006 weekly per capita sales more than doubled, due in part to a record-breaking jackpot in February.
“EuroMillions has become a solid contributor for GTECH. It continues to grow, with 10 jurisdictions now participating in the game, three of which are GTECH facilities management customers,” said Mr. Turner. “In fact, EuroMillions now has the largest player base of any multi-jurisdictional game in the world, with more than 200 million players.”
GTECH also deployed 35 new/modified games in more than 20 jurisdictions worldwide. Pick ‘n Play™, the Company’s new game concept designed to combine the appeal of instant gratification and multiple chances to win with the security and integrity of an online game, was recently launched in Illinois. Several other lotteries around the world are currently considering Pick ‘n Play as a new revenue source and complementary product line to add to their existing game portfolios.
“We’re excited about the evolution of our game content, and Pick ‘n Play is just one example of how fresh games can keep lottery play fun and exciting and stimulate incremental sales,” concluded Mr. Turner.
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Other Business Developments
On January 10, 2006, the Company entered into an agreement with Lottomatica S.p.A, an Italian corporation and the exclusive license holder and operator of Italy’s Lotto, and De Agostini S.p.A., a privately held Italian diversified industrial and financial holding group that is Lottomatica’s majority shareholder, pursuant to which Lottomatica will acquire GTECH for $35.00 in cash per outstanding GTECH share.
The all cash transaction, which is subject to financing as well as regulatory, customer, and shareholder approvals, is expected to close in mid-2006. The total enterprise value of the transaction is approximately $4.8 billion.
Fiscal 2006 Fourth Quarter and Full Year Financial Slides
For additional information on GTECH’s fourth quarter and year-end results, please visit the Investors section of www.gtech.com.
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.
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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 is a leading gaming technology and services company. With more than $1.3 billion in annual revenues and 5,300 people in over 50 countries, GTECH provides integrated technology, creative content, and business services to effectively manage and grow today’s evolving gaming markets. In targeted emerging economies, GTECH also leverages its operational presence and infrastructure to supply commercial transaction processing services. For more information about the Company, please visit GTECH’s website at http://www.gtech.com.
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Consolidated financial statements to follow:
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GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
| Fourth Quarter Fiscal Year Ended |
| February 25, 2006 | | February 26, 2005 |
| (Dollars in thousands, except per share amounts) |
Revenues: | | | |
Services | $294,074 | | $264,298 |
Sales of products | 74,253 | | 73,570 |
| 368,327 | | 337,868 |
Costs and expenses: | | | |
Costs of services | 179,003 | | 164,897 |
Costs of sales | 40,359 | | 53,996 |
| 219,362 | | 218,893 |
| | | |
Gross profit | 148,965 | | 118,975 |
| | | |
Selling, general and administrative | 40,107 | | 29,989 |
Research and development | 14,242 | | 13,818 |
Operating expenses | 54,349 | | 43,807 |
| | | |
Operating income | 94,616 | | 75,168 |
| | | |
Other income (expense): | | | |
Interest income | 3,926 | | 1,657 |
Equity in earnings (loss) of unconsolidated affiliates | (1,194) | | 403 |
Other expense | (891) | | (1,175) |
Interest expense | (7,631) | | (7,470) |
| (5,790) | | (6,585) |
| | | |
Income before income taxes | 88,826 | | 68,583 |
| | | |
Income taxes | 29,410 | | 24,740 |
| | | |
Net income | $59,416 | | $43,843 |
| | | |
Basic earnings per share | $0.47 | | $0.38 |
| | | |
Diluted earnings per share | $0.45 | | $0.34 |
| | | |
Weighted average shares outstanding - basic | 126,708 | | 115,555 |
| | | |
Weighted average shares outstanding - diluted | 130,772 | | 131,075 |
| | | |
Dividends per share - common stock | $0.085 | | $0.085 |
| | | | |
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GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
| Fiscal Year Ended |
| February 25, 2006 | | February 26, 2005 | | February 28, 2004 |
| | (Dollars in thousands, except per share amounts) |
| Revenues: | | | | | |
| Services | $1,122,668 | | $1,017,683 | | $957,471 |
| Sales of products | 182,138 | | 239,552 | | 93,859 |
| | 1,304,806 | | 1,257,235 | | 1,051,330 |
| Costs and expenses: | | | | | |
| Costs of services | 674,528 | | 616,633 | | 537,839 |
| Costs of sales | 104,037 | | 157,974 | | 59,226 |
| | 778,565 | | 774,607 | | 597,065 |
| | | | | | |
| Gross profit | 526,241 | | 482,628 | | 454,265 |
| | | | | | |
| Selling, general and administrative | 135,715 | | 117,253 | | 109,092 |
| Research and development | 49,869 | | 52,559 | | 57,318 |
| Operating expenses | 185,584 | | 169,812 | | 166,410 |
| | | | | | |
| Operating income | 340,657 | | 312,816 | | 287,855 |
| | | | | | |
| Other income (expense): | | | | | |
| Interest income | 10,912 | | 4,615 | | 5,733 |
| Equity in earnings of unconsolidated affiliates | 1,941 | | 2,812 | | 6,236 |
| Other income (expense) | (4,341) | | 5,356 | | 1,889 |
| Interest expense | (30,793) | | (19,213) | | (10,919) |
| | (22,281) | | (6,430) | | 2,939 |
| | | | | | |
| Income before income taxes | 318,376 | | 306,386 | | 290,794 |
| | | | | | |
| Income taxes | 107,331 | | 109,992 | | 107,594 |
| | | | | | |
| Net income | $211,045 | | $196,394 | | $183,200 |
| | | | | | |
| Basic earnings per share | $1.73 | | $1.68 | | $1.57 |
| | | | | | |
| Diluted earnings per share | $1.63 | | $1.50 | | $1.40 |
| | | | | | |
| Weighted average shares outstanding - basic | 121,884 | | 116,739 | | 116,464 |
| | | | | | |
| Weighted average shares outstanding - diluted | 130,385 | | 132,559 | | 132,625 |
| | | | | | |
| Cash dividends declared per common share | $0.34 | | $0.34 | | $0.255 |
| | | | | | |
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GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| February 25, 2006 | | February 26, 2005 | |
ASSETS | (Dollars in thousands) | |
CURRENT ASSETS: | | | |
| Cash and cash equivalents | $235,191 | | $94,446 |
| Investment securities available-for-sale | 260,725 | | 196,825 |
| Trade and other receivables, net | 183,561 | | 172,167 |
| Refundable performance deposit | 8,000 | | 8,000 |
| Inventories | 88,024 | | 61,135 |
| Deferred income taxes | 26,398 | | 31,435 |
| Other current assets | 47,819 | | 26,646 |
TOTAL CURRENT ASSETS | 849,718 | | 590,654 |
| | | |
SYSTEMS, EQUIPMENT AND OTHER ASSETS RELATING TO CONTRACTS, net | 692,545 | | 720,438 |
| | | |
GOODWILL | 346,096 | | 331,022 |
| | | |
PROPERTY, PLANT AND EQUIPMENT, net | 101,416 | | 74,558 |
| | | |
INTANGIBLE ASSETS, net | 64,212 | | 70,839 |
| | | |
OTHER ASSETS | 45,915 | | 67,630 |
TOTAL ASSETS | $2,099,902 | | $1,855,141 |
| | | |
LIABILITIES AND SHAREHOLDERS' EQUITY | | | |
CURRENT LIABILITIES: | | | |
| Accounts payable | $93,205 | | $99,234 |
| Accrued expenses | 46,220 | | 54,227 |
| Employee compensation | 31,804 | | 21,862 |
| Advance payments from customers | 63,768 | | 42,865 |
| Deferred revenue and advance billings | 17,889 | | 29,705 |
| Income taxes payable | 67,098 | | 16,499 |
| Taxes other than income taxes | 17,106 | | 16,572 |
| Short-term borrowings | - | | 334 |
| Current portion of long-term debt | 9,148 | | 2,476 |
TOTAL CURRENT LIABILITIES | 346,238 | | 283,774 |
| | | |
LONG-TERM DEBT, less current portion | 542,259 | | 726,329 |
| | | |
OTHER LIABILITIES | 106,671 | | 83,260 |
| | | |
DEFERRED INCOME TAXES | 99,362 | | 106,010 |
| | | |
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, 127,179,225 and 116,551,144 shares issued; 127,179,225 and 115,006,751 shares outstanding at February 25, 2006 and February 26, 2005, respectively | 1,272 | | 1,166 |
| Additional paid-in capital | 444,810 | | 278,204 |
| Accumulated other comprehensive loss | (35,662) | | (43,227) |
| Retained earnings | 594,952 | | 455,537 |
| | 1,005,372 | | 691,680 |
| Less cost of 1,544,393 shares in treasury at February 26, 2005 | - | | (35,912) |
| 1,005,372 | | 655,768 |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $2,099,902 | | $1,855,141 |
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GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Fiscal Year Ended | |
| February 25, 2006 | | February 26, 2005 | | February 28, 2004 | |
| (Dollars in thousands) | |
OPERATING ACTIVITIES | | | | | |
Net income | $211,045 | | $196,394 | | $183,200 |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation | 166,768 | | 145,999 | | 115,324 |
| Intangibles amortization | 10,582 | | 12,616 | | 3,735 |
| Other amortization | 154 | | - | | - |
| Deferred income taxes | 11,309 | | 34,740 | | 59,457 |
| Tax benefit related to stock award plans | 6,670 | | 11,254 | | 10,432 |
| Minority interest | 1,673 | | 3,799 | | 4,502 |
| Equity in earnings of unconsolidated affiliates, net of dividends received | 582 | | 3,461 | | 1,672 |
| Gain on sale of investments | (751) | | (10,924) | | - |
| Non-cash gain from consolidation of West Greenwich Technology Associates, L.P. | - | | - | | (5,292) |
| Other | 26,991 | | 16,438 | | 10,726 |
| Changes in operating assets and liabilities: | | | | | |
| | Trade and other receivables, net | (17,420) | | (42,745) | | 9,634 |
| | Inventories | (27,003) | | 28,522 | | 3,030 |
| | Other current assets | (14,029) | | 1,654 | | (4,913) |
| | Accounts payable | (4,854) | | 14,248 | | 2,186 |
| | Employee compensation | 8,295 | | (15,118) | | (4,231) |
| | Advance payments from customers | 20,903 | | (33,994) | | 51,601 |
| | Deferred revenue and advance billings | (11,816) | | 15,037 | | (2,979) |
| | Income taxes payable | 54,675 | | 11,484 | | (27,649) |
| | Other assets and liabilities | (14,150) | | (17,656) | | 4,632 |
NET CASH PROVIDED BY OPERATING ACTIVITIES | 429,624 | | 375,209 | | 415,067 |
| | | | | |
INVESTING ACTIVITIES | | | | | |
Acquisitions (net of cash acquired) | (23,084) | | (200,730) | | (74,442) |
Purchases of systems, equipment and other assets relating to contracts | (137,316) | | (245,592) | | (268,010) |
Purchases of available-for-sale investment securities | (147,275) | | (246,975) | | (242,050) |
Maturities and sales of available-for-sale investment securities | 83,375 | | 272,000 | | 20,200 |
Purchases of property, plant and equipment | (9,656) | | (12,875) | | (12,772) |
License fees | (1,750) | | - | | (12,500) |
Investments in and advances to unconsolidated subsidiaries | (1,488) | | (2,071) | | (2,885) |
Refundable performance deposit | 8,000 | | - | | (20,000) |
(Increase) decrease in restricted cash | 5,080 | | (5,112) | | - |
Proceeds from sale of investments | 3,000 | | 11,773 | | - |
NET CASH USED FOR INVESTING ACTIVITIES | (221,114) | | (429,582) | | (612,459) |
| | | | | |
FINANCING ACTIVITIES | | | | | |
Net proceeds from issuance of long-term debt | - | | 343,254 | | 252,588 |
Principal payments on long-term debt | (2,302) | | (167,692) | | (33,293) |
Purchases of treasury stock | (32,051) | | (120,658) | | - |
Dividends paid | (41,672) | | (39,830) | | (29,977) |
Premiums and fees paid in connection with the early retirement of debt | - | | (10,610) | | (731) |
Proceeds from stock options | 9,473 | | 13,546 | | 23,943 |
Other | (4,439) | | (505) | | (6,324) |
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES | (70,991) | | 17,505 | | 206,206 |
| | | | | |
Effect of exchange rate changes on cash | 3,226 | | 1,975 | | 4,351 |
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 140,745 | | (34,893) | | 13,165 |
| | | | | |
Cash and cash equivalents at beginning of year | 94,446 | | 129,339 | | 116,174 |
| | | | | |
CASH AND CASH EQUIVALENTS AT END OF YEAR | $235,191 | | $94,446 | | $129,339 |
| | | | | | | | |
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