EXHIBIT 99(a)
55 Technology Way o West Greenwich, Rhode Island 02817 USA o Telephone: 401
392-1000 o Fax: 401 392-1234 o Website: www.gtech.com
For Immediate Release Contact: Robert K. Vincent
June 19, 2003 Public Affairs
GTECH Corporation
401-392-7452
GTECH ANNOUNCES FISCAL YEAR 2004 FIRST-QUARTER RESULTS
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Company Revises Fiscal Year 2004 Estimates Upward;
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Announces Annual Cash Dividend
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WEST GREENWICH, RI - (June 19, 2003) - GTECH Holdings Corporation (NYSE:GTK)
today announced first quarter earnings for fiscal year 2004 ended May 24, 2003.
"We are pleased with the continued strength of our business and performance
levels ahead of our expectations, driven by the continued strength in same store
sales, particularly in our international markets," said GTECH President and
Chief Executive Officer W. Bruce Turner. "In addition, during the quarter, we
benefited from significantly lower costs driven by lower depreciation and the
benefits of our continued cost efficiency programs."
"Same store sales increased more than 5 percent over the first quarter of last
year, with domestic same store sales up approximately 3 percent and
international same store sales up approximately 9 percent," continued Mr.
Turner. "This marks the fifth consecutive quarter of same store sales growth in
excess of 5 percent, a trend we find very encouraging."
"We remain optimistic by the positive trends we continue to see in the business,
particularly the strength of our core business, and we are excited about the
opportunities PolCard and Interlott have to offer," said GTECH Senior Vice
President and Chief Financial Officer Jaymin B. Patel. "We are confident that
this fiscal year will be another strong year in terms of profitability and
shareholder returns."
-more-
Operating Results
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Revenues for the first quarter of fiscal 2004 totaled $239.6 million, up 3.5%
over the $231.4 million of revenues in the first quarter of fiscal 2003, due to
higher product sales. Net income was $41.0 million, or $0.68 per diluted share,
up 39% over net income of $29.0 million, or $0.49 per diluted share, for the
same period last year.
Service revenues were $223.5 million in the quarter, comparable to the $223.7
million of service revenues in the same quarter last year. Had last year's
average exchange rates prevailed throughout the most recent quarter, we estimate
that service revenues would have increased by approximately 2.2% compared to the
first quarter of last year.
Product sales in the first quarter of fiscal 2004 were $16.0 million, up $8.3
million over the $7.7 million recorded in the first quarter of fiscal 2003,
primarily driven by sales of terminals to our customers in Taiwan, Poland, and
China.
Service margins improved to 43.3% in the first quarter of fiscal 2004, from
34.3% in the prior year quarter. Fiscal 2004 first quarter service margins
benefited from lower depreciation principally related to fully depreciated
assets associated with our contract with Caixa Economica Federal in Brazil, and
the absence of certain cash costs, incurred during the prior year first quarter.
Product margins improved to 46.2% in the first quarter of fiscal 2004 from 18.6%
in the first quarter of last year, primarily due to the mix of sales in the
first quarter of fiscal 2004, which included higher margin terminal sales to our
customers in Taiwan, Poland, and China, driven by improved efficiencies in our
manufacturing process.
-more-
Operating expenses in the first quarter of fiscal 2004 were $38.7 million, up
$9.3 million compared to the first quarter of fiscal 2003. This increase was
driven by $7.9 million of increased spending on research and development as we
continue our efforts to accelerate the development and deployment of
industry-leading solutions into the marketplace and to execute against our
commercial services strategy. In addition, selling, general, and administrative
expenses were up $1.4 million, driven by expenses associated with our bi-annual
global users conference.
Equity income was $1.9 million in the first quarter of fiscal 2004, compared to
$0.7 million in the first quarter of the prior year, reflecting higher equity
income from our joint venture in Taiwan.
Cash Flow and Investments
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During the first quarter of fiscal 2004, we generated $63.0 million of cash from
operations, which was principally used to fund investing activities totaling
$59.8 million, resulting in free cash flows of $3.2 million. At the end of the
fiscal 2004 first quarter, we had no borrowings under our $300 million credit
facility.
Financial Outlook
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The Company also revised earnings guidance upward for fiscal year ending
February 28, 2004.
We now expect service revenue growth in the range of 8% to 10%, reflecting a 5%
to 6% growth in same store sales, combined with net contract wins and the impact
of two recently-announced acquisitions, partially offset by a number of factors,
including contractual rate changes and fluctuations in foreign exchange rates
against the U.S. Dollar. We continue to expect product sales to be in the range
of $110 million to $120 million.
-more-
We expect that service profit margins will be in the range of 40% to 42%, and
product sale profit margins to be in the range of 26% to 28%.
Based on the improved outlook, we now expect earnings per share for fiscal year
2004 to be in the range of $2.55 to $2.65 on a fully-diluted basis, rather than
the previously announced $2.40 to $2.50 per share, adjusted to reflect the
impact of the Company's convertible bonds, which have been convertible into
equity since May 1, 2003.
For the second quarter of fiscal 2004, ending August 23, 2003, we expect service
revenue growth in the range of 10% to 12%, and product sales in the range of $50
million to $55 million. We expect service margins to be comparable to the full
year outlook and product margins in the range of 26% to 28%. Accordingly, we
expect earnings per share to be in the range of $0.65 to $0.70 per share for the
quarter, after considering the dilutive impact of our convertible debentures of
approximately $0.06, compared with $0.66 reported in the same period last year.
Second quarter outlook assumes a full quarter of revenues from the recently
completed acquisition of PolCard and approximately one month of revenues from
the pending acquisition of Interlott.
Annual Cash Dividend
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GTECH also announced today that its Board of Directors approved an annual cash
dividend in the amount of $0.68 per share, payable quarterly beginning in the
second quarter of this fiscal year. The Company will pay $0.17 per share on July
31, 2003, to shareholders of record as of July 15, 2003.
-more-
"Given our strong free cash flows, combined with our substantial cash position
and financial flexibility, we are confident that we can continue to fund our
strategy for profitable growth, maintain our open market share repurchase
program, and return cash to our owners through a dividend program," continued
Mr. Turner.
First Quarter Highlights
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In the first quarter of fiscal 2004, GTECH continued to strengthen its market
leadership in the core lottery business. The Company signed a 25-month contract
extension with Caixa Economica Federal, the administrator of the National
Lottery in Brazil, to continue providing online lottery and financial services
in Brazil.
In addition, GTECH signed a master contract with the Rhode Island Lottery giving
the Company the right to be the exclusive provider of online, instant ticket,
and video lottery central systems and services for the Rhode Island Lottery for
a 20-year term commencing July 2003.
GTECH expects to generate revenues of over $820 million from the Caixa extension
and the Rhode Island contract combined.
"With the signing of these contracts, we have essentially locked in all major
lottery customers through fiscal 2005," said Mr. Turner. "This has enabled us to
shift our focus from defending our current business to vigorously pursuing new
business opportunities in jurisdictions such as Florida, Tennessee, Thailand,
and Norway."
-more-
Also in the quarter, GTECH announced two major strategic acquisitions. Advancing
its commercial services strategy, the Company acquired a controlling equity
position in PolCard, the leading debit and credit card merchant transaction
acquirer and processor company in Poland. GTECH completed the acquisition of
PolCard after the close of the first quarter.
To drive new growth in the lottery business and give GTECH a major presence in
the instant tickets segment, the Company announced it will acquire Interlott
Technologies, a leading provider of instant ticket vending machines (ITVMs) for
the worldwide lottery industry. GTECH expects to complete the acquisition of
Interlott by the end of August 2003.
In an effort to expand the core lottery business and attract new players, GTECH
announced it will be the exclusive provider of e-scratch, an innovative
web-based, interactive suite of scratch and reveal games. The introduction of
these games into the interactive online environment represents a significant
business growth opportunity for GTECH.
After the close of the first quarter, the Michigan Lottery signed a three-year
contract extension with GTECH and exercised an option in its existing contract
with GTECH for Club Keno. The Company expects to generate revenues of
approximately $145 million for this contract extension and Club Keno.
GTECH also announced it was chosen to negotiate a new five-year integrated
services contract with the Wisconsin Lottery for a fully integrated online and
instant ticket gaming system, and IP-based wireless telecommunications network.
-more-
Recent Business Development
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More recently, as reported in an 8-K filing made yesterday, the Company has been
made aware of a determination by the Brazilian Federal Court of Accounts. The
premise of the determination is that some of the payments made to GTECH under
the terms and conditions of its contract with Caixa Economica Federal were not
in accordance with applicable Brazilian law and were overpayments. The
proceedings are in initial stages. There has been no suggestion of impropriety.
The Company intends to defend its contract vigorously including a preliminary
defense based on the absence of due process of law. The Company was not afforded
a fair chance to address the issues raised by the Court prior to the
determination.
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 and financial services transaction
processing 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 $1 billion in
revenues and 4,200 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.
-000-
Consolidated statement of operations to follow:
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
Three Months Ended
May 24, May 25,
2003 2002
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(Dollars in thousands,
except per share amounts)
Revenues:
Services $ 223,538 $ 223,735
Sales of products 16,047 7,677
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239,585 231,412
Costs and expenses:
Costs of services 126,797 146,935
Costs of sales 8,629 6,247
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135,426 153,182
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Gross profit 104,159 78,230
Selling, general and administrative 24,280 22,909
Research and development 14,390 6,502
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Operating expenses 38,670 29,411
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Operating income 65,489 48,819
Other income (expense):
Interest income 1,188 842
Equity in earnings of unconsolidated affiliates 1,929 696
Other expense (1,180) (591)
Interest expense (2,306) (2,925)
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(369) (1,978)
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Income before income taxes 65,120 46,841
Income taxes 24,094 17,800
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Net income $ 41,026 $ 29,041
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Basic earnings per share $ 0.72 $ 0.50
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Diluted earnings per share $ 0.68 $ 0.49
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Weighted average shares outstanding - basic 56,904 57,583
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Weighted average shares outstanding - diluted 60,228 59,261
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GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
May 24, February 22,
2003 2003
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ASSETS (Dollars in thousands)
CURRENT ASSETS:
Cash and cash equivalents $ 131,476 $ 116,174
Trade accounts receivable, net 95,738 107,666
Sales-type lease receivables 4,303 4,400
Inventories 84,713 72,287
Deferred income taxes 29,410 29,410
Other current assets 26,342 18,660
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TOTAL CURRENT ASSETS 371,982 348,597
SYSTEMS, EQUIPMENT AND OTHER ASSETS RELATING TO CONTRACTS, net 432,133 410,911
GOODWILL, net 115,498 115,498
OTHER ASSETS 80,272 79,189
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TOTAL ASSET S $ 999,885 $ 954,195
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 60,055 $ 74,042
Accrued expenses 71,599 67,220
Employee compensation 18,945 37,494
Advance payments from customers 83,567 69,706
Income taxes payable 51,244 54,043
Short term borrowings 2,475 2,616
Current portion of long-term debt 7,161 6,992
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TOTAL CURRENT LIABILITIES 295,046 312,113
LONG-TERM DEBT, less current portion 287,218 287,088
OTHER LIABILITIES 41,489 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; 57,367,876 and
56,638,331 shares
outstanding at May 24, 2003 and February 22, 2003,
respectively 923 923
Additional paid-in capital 246,689 242,274
Equity carryover basis adjustment (7,008) (7,008)
Accumulated other comprehensive loss (91,319) (95,488)
Retained earnings 726,254 684,653
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875,539 825,354
Less cost of 34,928,528 and 35,658,073 shares in treasury at
May 24, 2003 and February 22, 2003, respectively (499,407) (509,788)
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376,132 315,566
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 999,885 $ 954,195
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GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
May 24, May 25,
2003 2002
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(Dollars in thousands)
OPERATING ACTIVITIES
Net income $ 41,026 $ 29,041
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 25,692 33,956
Intangibles amortization 447 1,685
Tax benefit related to stock award plans 4,415 6,462
Equity in earnings of unconsolidated affiliates, net of dividends received (959) 215
Other 3,284 1,844
Changes in operating assets and liabilities:
Trade accounts receivable 11,447 14,013
Inventories (12,426) (3,100)
Special charge (52) (347)
Other assets and liabilities (9,905) 7,628
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NET CASH PROVIDED BY OPERATING ACTIVITIES 62,969 91,397
INVESTING ACTIVITIES
Purchases of systems, equipment and other assets relating to contracts (58,663) (53,023)
Other (1,186) (662)
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NET CASH USED FOR INVESTING ACTIVITIES (59,849) (53,685)
FINANCING ACTIVITIES
Net proceeds from issuance of long-term debt 1,409 -
Principal payments on long-term debt (866) (1,561)
Purchases of treasury stock - (37,686)
Proceeds from stock options 8,406 12,549
Other (52) 673
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NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 8,897 (26,025)
Effect of exchange rate changes on cash 3,285 3,094
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INCREASE IN CASH AND CASH EQUIVALENTS 15,302 14,781
Cash and cash equivalents at beginning of period 116,174 35,095
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 131,476 $ 49,876
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