55 Technology Way Telephone: 401 392-1000
West Greenwich, Rhode Island 02817 Fax: 401 392-1234
USA Website: WWW.GTECH.COM
For Immediate Release Contact: Robert K. Vincent
September 12, 2003 Public Affairs
GTECH Corporation
401-392-7452
GTECH ANNOUNCES RECORD EARNINGS PER SHARE
Company Reports Fiscal Year 2004 Second Quarter Results;
Revises Fiscal Year 2004 Estimates Upward
WEST GREENWICH, RI - (September 12, 2003) - GTECH Holdings Corporation
(NYSE:GTK) today announced second quarter earnings for fiscal year 2004 ended
August 23, 2003.
"We enjoyed another strong quarter," said GTECH President and CEO W. Bruce
Turner. "Global same store sales grew by a healthy seven percent and we
experienced solid jackpot activity. The growth in service revenues, combined
with operational efficiencies in our business, enabled us to deliver service
margins in excess of forty percent, and we generated earnings per share
significantly higher than our expectations."
Commenting on the quarter, GTECH Senior Vice President and Chief Financial
Officer Jaymin B. Patel said, "We are delighted with the continued improvement
in the underlying performance of the business, particularly with the substantial
increase in service revenues. The strength of our core business, combined with
the exciting opportunities that PolCard and Interlott offer, give us confidence
that we can continue to increase profitability and generate strong returns for
our shareholders."
Operating Results
- -----------------
Revenues for the second quarter of fiscal 2004 totaled $277.2 million, up 25.5%
over the $221.0 million of revenues in the second quarter of fiscal 2003. Net
income was $48.5 million, or $0.74 per diluted share, up 26.9% over net income
of $38.2 million, or $0.66 per diluted share, for the same period last year.
Revenues for the first six months of fiscal 2004 were $516.8 million, up 14.2%
over revenues of $452.4 million in the first six months of fiscal 2003. Net
income was $89.5 million, or $1.43 per diluted share, up substantially over net
income of $67.2 million, or $1.14 per diluted share, for the same period last
year.
Second Quarter
- --------------
Service revenues were $238.0 million in the quarter, up 12.5% over the $211.6
million of service revenues in the same quarter last year, driven by the
continued strength of same store sales, strong jackpot activity, favorable
exchange rates, and the acquisition of PolCard.
Product sales in the second quarter of fiscal 2004 were $39.2 million, up
substantially over the $9.4 million recorded in the second quarter of fiscal
2003, primarily driven by the sale of GTECH's new interactive, web-based
software application, ES Interactive(TM), to the Company's customer in the
United Kingdom.
Service margins improved to 44.2% in the second quarter of fiscal 2004 from 40%
in the prior year quarter. Fiscal 2004 second quarter service margins benefited
from lower depreciation associated with existing contracts and improved
operating efficiencies, combined with the impact of higher jackpot activity.
Operating expenses in the second quarter of fiscal 2004 were $41.2 million, up
$11.1 million compared to the $30.1 million of operating expenses incurred in
the second quarter of fiscal 2003. This increase was driven by $6.9 million of
increased spending on research and development as the Company continues its
efforts to accelerate the development and deployment of industry-leading
products into the marketplace and to execute against its commercial services
strategy. In addition, selling, general, and administrative expense was up $4.2
million, primarily driven by business development activities in Poland and
Mexico, increased marketing expenses primarily associated with trade shows and
conferences, and the consolidation of PolCard.
Year to Date
- ------------
Service revenues were $461.6 million in the first six months of fiscal 2004, up
6% over the $435.3 million of service revenues in the same period last year,
primarily due to worldwide same store sales growth.
Product sales in the first six months of fiscal 2004 were $55.3 million,
compared to $17.0 million recorded in the first six months of fiscal 2003,
again, primarily driven by the sale of ES Interactive to GTECH's customer in the
United Kingdom.
Service margins improved to 43.8% compared to 37.1% in the first six months of
fiscal 2003, primarily driven by lower depreciation associated with existing
contracts and the absence of certain consulting costs incurred during the first
six months of the prior year.
Operating expenses in the first six months of fiscal 2004 were $79.8 million, up
$20.3 million compared to the $59.5 million of operating expenses incurred
during the first six months of fiscal 2003. This increase was driven by $14.8
million of increased spending on research and development and $5.5 million of
increased selling, general, and administrative expense for the reasons outlined
above.
Cash Flow and Investments
- -------------------------
During the first six months of fiscal 2004, GTECH generated $170.5 million of
cash from operations, which, along with cash on hand, was principally used to
fund investing activities totaling $204.8 million, including the acquisition of
PolCard. At the end of the fiscal 2004 second quarter, the Company had no
borrowings under its $300 million credit facility.
During the fiscal 2004 second quarter, GTECH paid its first quarterly cash
dividend of $0.17 per share to shareholders of record as of July 15, 2003, for a
total of $9.9 million.
Financial Outlook
- -----------------
The Company revised earnings guidance for the fiscal year ending February 28,
2004.
GTECH expects service revenue growth in the range of 7% to 8%, and product sales
to be in the range of $120 million to $130 million. The Company expects service
margins in the range of 41% to 43% for the current fiscal year and product
margins in the range of 32% to 34%.
Based on this outlook, the Company now expects earnings per share for fiscal
2004 to be in the range of $2.65 to $2.75 on a fully-diluted basis, compared
with earnings per share of $2.43 reported in fiscal 2003. This is an upward
revision of the previously announced $2.55 to $2.65 per share. In addition, in
conjunction with the consolidation of the partnership that owns GTECH's
headquarters facilities, in compliance with FASB Interpretation Number 46 (FIN
46) "Consolidation of Variable Interest Entities," the Company expects to report
a one-time, non-cash, pre-tax gain in the amount of $0.05 per diluted share.
Including the impact of this cumulative effect of accounting change, the Company
expects to report earnings per share in the range of $2.70 to $2.80 on a fully
diluted basis. Current diluted share estimates for the year are at 65 million
shares.
For the third quarter of fiscal 2004, ending November 22, 2003, GTECH expects
service revenue growth in the range of 8% to 10%, and product sales in the range
of $40 million to $45 million. The Company expects service margins in the range
of 40% to 42%, and product margins in the range of 36% to 38%. Accordingly,
GTECH expects diluted earnings per share to be in the range of $0.55 to $0.60
per share for the quarter, after considering the impact of its convertible
debentures of approximately $0.06 per share. This compares to $0.57 reported in
the same period last year. Including the one-time gain relating to the adoption
of FIN 46 referenced above, the Company expects to report diluted earnings per
share in the range of $0.60 to $0.65 per share.
The third quarter outlook assumes a full quarter of revenues from PolCard and
approximately two months of revenues from the pending acquisition of Interlott,
scheduled to be completed on September 18, 2003.
Second Quarter Highlights
- -------------------------
In the second quarter of fiscal 2004, GTECH continued to execute against its
growth strategy by signing new contracts and contract extensions both
domestically and abroad.
The Company was awarded a new five-year integrated services contract by the
Wisconsin Lottery to provide a fully integrated online and instant ticket gaming
system, and IP-based wireless telecommunications network.
The Michigan Lottery signed a three-year contract extension with GTECH and
exercised an option in its existing contract with GTECH for Club Keno(R).
Additionally, GTECH extended its relationship with lottery customers in New
Zealand, Sweden, Turkey, and with the Idaho Department of Fish and Game.
GTECH also entered into a five-year agreement with The National Lotteries
Control Board and The Betting Levy Board in Trinidad and Tobago to provide a
complete video lottery solution, including a central system, video lottery
terminals (VLTs), and communications network.
After the close of the second quarter, GTECH strengthened its market leadership
in the core lottery business when the Company was named the successful vendor to
provide online lottery equipment and services to the Florida Lottery under a
multi-year integrated services contract, following a competitive procurement.
Also after the close of the quarter, GTECH signed an agreement with the Texas
Lottery to provide 1,000 Altura(R) Self Service Terminals (SSTs) and 8,000 LED
messaging displays; and a two-year extension agreement with its customer, Dansk
Tipstjeneste, in Denmark.
"These wins demonstrate GTECH's continued technical strength and financial
soundness to compete in today's dynamic and highly competitive lottery
industry," continued Mr. Turner. "In fact, Florida is the fourth consecutive
jurisdiction to validate the strength of our technology offerings, by giving
GTECH the highest technical score of all bidders. Scheduled to begin in February
2005, the Florida Lottery contract serves to secure future revenues for GTECH in
fiscal 2006 and beyond."
Other Business Developments
- ---------------------------
In the second quarter, GTECH successfully completed the acquisition of PolCard
S.A., the leading credit and debit card merchant transaction acquirer and
processor company in Poland.
Also in the quarter, GTECH completed the final agreement and negotiations of a
20-year Master Contract with the Rhode Island Lottery that allows GTECH the
right to be the exclusive provider of online, instant-ticket, and video lottery
central systems and services. In addition, the Company will work with the Rhode
Island Lottery to introduce a number of other government and commercial
transaction services. As previously reported, the Company plans to relocate it
headquarters facility to Providence, Rhode Island. A key component of the
overall deal was a tax stabilization agreement for the Company's proposed World
Headquarters in downtown Providence. The Providence City Council passed this
agreement in early July.
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.
ooo
GTECH, a leading global information technology company with $1 billion in
revenues and approximately 4,600 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:
CONSOLIDATED INCOME STATEMENTS
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
(Unaudited)
Three Months Ended
--------------------------
August 23, August 24,
2003 2002
----- ----
(Dollars in thousands,
except per share amounts)
Revenues:
Services $ 238,019 $ 211,600
Sales of products 39,228 9,358
--------- ---------
277,247 220,958
Costs and expenses:
Costs of services 132,805 126,942
Costs of sales 28,810 4,109
--------- ---------
161,615 131,051
--------- ---------
Gross profit 115,632 89,907
Selling, general and administrative 27,051 22,901
Research and development 14,106 7,170
--------- ---------
Operating expenses 41,157 30,071
--------- ---------
Operating income 74,475 59,836
Other income (expense):
Interest income 1,021 977
Equity in earnings of unconsolidated affiliates 2,691 1,261
Other income 465 2,269
Interest expense (1,705) (2,718)
--------- ---------
2,472 1,789
--------- ---------
Income before income taxes 76,947 61,625
Income taxes 28,471 23,418
--------- ---------
Net income $ 48,476 $ 38,207
========= =========
Basic earnings per share $ 0.84 $ 0.67
========= =========
Diluted earnings per share $ 0.74 $ 0.66
========= =========
Weighted average shares outstanding - basic 57,918 57,225
========= =========
Weighted average shares outstanding - diluted 65,908 58,299
========= =========
Dividends per share - common stock $ 0.17 $ --
========= =========
CONSOLIDATED INCOME STATEMENTS
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
(Unaudited)
Six Months Ended
-----------------------
August 23, August 24,
2003 2002
---- ----
(Dollars in thousands,
except per share amounts)
Revenues:
Services $ 461,557 $ 435,335
Sales of products 55,275 17,035
--------- ---------
516,832 452,370
Costs and expenses:
Costs of services 259,602 273,877
Costs of sales 37,439 10,356
--------- ---------
297,041 284,233
--------- ---------
Gross profit 219,791 168,137
Selling, general and administrative 51,331 45,810
Research and development 28,496 13,672
--------- ---------
Operating expenses 79,827 59,482
--------- ---------
Operating income 139,964 108,655
Other income (expense):
Interest income 2,209 1,819
Equity in earnings of unconsolidated affiliates 4,620 1,957
Other income (expense) (715) 1,678
Interest expense (4,011) (5,643)
--------- ---------
2,103 (189)
--------- ---------
Income before income taxes 142,067 108,466
Income taxes 52,565 41,218
--------- ---------
Net income $ 89,502 $ 67,248
========= =========
Basic earnings per share $ 1.56 $ 1.17
========= =========
Diluted earnings per share $ 1.43 $ 1.14
========= =========
Weighted average shares outstanding - basic 57,413 57,387
========= =========
Weighted average shares outstanding - diluted 62,994 58,763
========= =========
Dividends per share - common stock $ 0.17 $ --
========= =========
CONSOLIDATED BALANCE SHEETS
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
(Unaudited)
August 23, February 22,
2003 2003
----- ----
ASSETS (Dollars in thousands)
CURRENT ASSETS:
Cash and cash equivalents $ 94,322 $ 116,174
Trade accounts receivable, net 106,564 107,666
Sales-type lease receivables 4,213 4,400
Inventories 57,448 72,287
Deferred income taxes 29,410 29,410
Other current assets 28,849 18,660
----------- -----------
TOTAL CURRENT ASSETS 320,806 348,597
SYSTEMS, EQUIPMENT AND OTHER ASSETS RELATING TO CONTRACTS, net 504,348 410,911
GOODWILL, net 146,995 115,498
OTHER ASSETS 97,862 79,189
----------- -----------
TOTAL ASSETS $ 1,070,011 $ 954,195
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 63,375 $ 74,042
Accrued expenses 53,565 51,200
Employee compensation 28,335 37,494
Advance payments from customers 75,162 69,706
Income taxes payable 50,118 54,043
Taxes other than income taxes 25,262 16,020
Short term borrowings 2,219 2,616
Current portion of long-term debt 8,813 6,992
----------- -----------
TOTAL CURRENT LIABILITIES 306,849 312,113
LONG-TERM DEBT, less current portion 286,595 287,088
OTHER LIABILITIES 42,942 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; 58,235,704 and 56,638,331 shares
outstanding at August 23, 2003 and February 22, 2003, respectively 923 923
Additional paid-in capital 245,962 235,266
Accumulated other comprehensive loss (91,433) (95,488)
Retained earnings 765,230 684,653
----------- -----------
920,682 825,354
Less cost of 34,060,700 and 35,658,073 shares in treasury at
August 23, 2003 and February 22, 2003, respectively (487,057) (509,788)
----------- -----------
433,625 315,566
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,070,011 $ 954,195
=========== ===========
CONSOLIDATED STATEMENTS OF CASH FLOWS
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
(Unaudited)
Six Months Ended
-------------------------
August 23, August 24,
2003 2002
----- ----
(Dollars in thousands)
OPERATING ACTIVITIES
Net income $ 89,502 $ 67,248
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 51,924 66,619
Intangibles amortization 1,762 3,369
Tax benefit related to stock award plans 10,696 7,299
Equity in earnings of unconsolidated affiliates, net of dividends received (289) 653
Other 3,748 3,731
Changes in operating assets and liabilities:
Trade accounts receivable 9,769 8,490
Inventories 14,839 (12,780)
Other assets and liabilities (11,497) 55,024
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 170,454 199,653
INVESTING ACTIVITIES
Purchases of systems, equipment and other assets relating to contracts (143,774) (88,395)
Acquisitions (net of cash acquired) (41,023) --
Investments in and advances to unconsolidated subsidiaries (1,185) --
Other (18,785) (2,950)
--------- ---------
NET CASH USED FOR INVESTING ACTIVITIES (204,767) (91,345)
FINANCING ACTIVITIES
Net proceeds from issuance of long-term debt 1,409 --
Principal payments on long-term debt (2,146) (3,616)
Purchases of treasury stock -- (42,453)
Proceeds from stock options 21,101 14,331
Dividends paid (9,883) --
Other (484) 1,504
--------- ---------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 9,997 (30,234)
Effect of exchange rate changes on cash 2,464 1,737
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (21,852) 79,811
Cash and cash equivalents at beginning of period 116,174 35,095
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 94,322 $ 114,906
========= =========