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
December 16, 2003 Public Affairs
GTECH Corporation
401-392-7452
GTECH ANNOUNCES THIRD QUARTER RESULTS
-------------------------------------
Company Offers Preliminary Outlook for Fiscal Year 2005
-------------------------------------------------------
WEST GREENWICH, RI - (December 16, 2003) - GTECH Holdings Corporation (NYSE:GTK)
today announced third quarter earnings for fiscal year 2004 ended November 22,
2003.
"GTECH's third quarter results reflect continued strength in the core business,
with service revenues up by a healthy 11 percent," said GTECH President and CEO
W. Bruce Turner.
"A substantial amount of that growth was driven by stronger same store sales and
new customers in the core business," continued Mr. Turner. "In fact, same store
lottery sales, on a global basis, have grown by approximately five percent or
more every quarter for the last six consecutive quarters. Our recent PolCard and
Interlott acquisitions also played a part, contributing a total of $11 million
of service revenues in the quarter."
Commenting on the quarter, GTECH Senior Vice President and Chief Financial
Officer Jaymin B. Patel said, "We are pleased with the continued improvement in
the underlying performance of the business, particularly with the substantial
increase in service revenues and the continued improvements in profit margins."
"At this stage of the planning process, we are pleased that the outlook for
fiscal 2005 is shaping up well, giving us confidence that 2005 will be another
solid year in terms of revenue growth, profitability, and value creation for our
shareholders," continued Mr. Patel.
Operating Results
- -----------------
Revenues for the third quarter of fiscal 2004 totaled $254.9 million, comparable
to revenues of $256.5 million in the third quarter of fiscal 2003. Net income
was $45.9 million, or $0.69 per diluted share, up 39.7% over net income of $32.8
million, or $0.57 per diluted share, for the same period last year. Net income
for the fiscal 2004 third quarter includes a one-time, after-tax, non-cash gain
of $3.3 million, or $0.05 per diluted share, associated with the consolidation
of the partnership that owns the Company's corporate headquarters in West
Greenwich, Rhode Island.
Revenues for the first nine months of fiscal 2004 were $771.8 million, up 8.9%
over revenues of $708.8 million in the first nine months of fiscal 2003. Net
income was $135.4 million, or $2.12 per diluted share, up 35.3% over net income
of $100.1 million, or $1.71 per diluted share, for the same period last year.
Cash Flow and Investments
- -------------------------
During the first nine months of fiscal 2004, GTECH generated $309.9 million of
cash from operations which, along with cash on hand, was used to fund investing
activities totaling $328.2 million, including the acquisitions of PolCard and
Interlott. In addition, during the most recent quarter, the Company issued $250
million of 4.75% Senior Notes. At the end of the fiscal 2004 third quarter, the
Company had no borrowings under its credit facility.
During the fiscal 2004 third quarter, GTECH paid its second quarterly cash
dividend of $0.17 per share, for a total of $10.0 million.
Financial Outlook
- -----------------
The Company also updated guidance for the fiscal year ending February 28, 2004.
The Company expects service revenue growth in the range of 8% to 9%. The Company
expects product sales to be in the range of $105 million to $110 million.
The Company expects service margins to be in the range of 41% to 43%, and
product margins in the range of 33% to 35%.
Based on the current outlook, GTECH expects earnings per share for fiscal 2004
to be in the range of $2.75 to $2.80 on a fully diluted basis, including $0.05
per diluted share, associated with the $3.3 million after tax non-cash gain from
the consolidation of the partnership that owns the Company's corporate
headquarters in West Greenwich, Rhode Island.
Earnings per diluted share for the fourth quarter are expected to be in the
range of $0.63 to $0.68.
For fiscal 2005, ending February 26, 2005, the Company expects total revenue
growth of approximately 20% to 21%, including contributions from PolCard,
Interlott, and Spielo. The Company expects service revenue growth in the range
of 7% to 8%, reflecting a 4% to 6% increase in same store sales, net contract
wins, and the impact of acquisitions, offset by a number of factors, including
contractual rate changes and fluctuations in foreign exchange rates against the
U.S. Dollar.
The Company expects product sales in the range of $230 million to $250 million,
including approximately $70 million to $80 million from acquisitions.
The Company expects to maintain service margins in the range of 41% to 43% and
expects product margins in the range of 36% to 38%.
Based upon a diluted share estimate of 67.4 million, the Company believes that
earnings per share will be in the range of $2.95 to $3.05 for fiscal 2005.
Third Quarter Highlights
- ------------------------
In the third quarter of fiscal 2004, GTECH continued to strengthen its market
leadership in the core lottery market. The Company was awarded a seven-year
integrated services contract with the Tennessee Lottery to provide an online
lottery system, terminals, and a telecommunications network. GTECH was also
awarded a six-year contract to provide a new online and instant ticket lottery
system, terminals, and a telecommunications network for the Florida Lottery.
Both wins were the result of public, competitive procurements.
Additionally, GTECH signed a 12-year contract extension to provide online
lottery products and services to SAZKA, a.s., the operator of lottery and
betting games in the Czech Republic, and extended its relationship with lottery
customers in Denmark and Portugal.
In addition, GTECH advanced its position in the video lottery industry when the
Company announced its intention to acquire Spielo, a leading video lottery
solutions provider. It is expected that this acquisition will be completed in
the second quarter of GTECH's fiscal year 2005.
"In the third quarter alone, we won five contracts," said Mr. Turner. "There
were two new contracts, in Tennessee and Florida, and contract extensions in
Denmark, the Czech Republic, and Portugal. We expect that these contracts will
result in more than $500 million in aggregate revenue to the Company over the
respective contract terms.
It is also clear that our technology investments have had a major impact on our
competitiveness and success in winning new lottery contracts," continued Mr.
Turner. "In four of our last five procurements, GTECH received the highest
technical scores of any vendor."
Other Business Developments
- ---------------------------
In the third quarter, GTECH successfully completed the acquisition of Interlott
Technologies, Inc., a leading provider of instant ticket vending machines
(ITVMs) for the lottery industry worldwide.
After the close of the quarter, GTECH signed a 10-year contract to provide
online, instant, and passive lottery technology and management services in Sri
Lanka, which the Company expects will contribute over $100 million in revenue
over the contract's term.
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 4,900 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
--------------------------
November 22, November 23,
2003 2002
------------ ------------
(Dollars in thousands,
except per share amounts)
Revenues:
Services $ 231,225 $ 207,784
Sales of products 23,697 48,682
--------- ---------
254,922 256,466
Costs and expenses:
Costs of services 131,991 129,122
Costs of sales 13,094 39,070
--------- ---------
145,085 168,192
--------- ---------
Gross profit 109,837 88,274
Selling, general and administrative 28,167 24,358
Research and development 12,926 10,903
--------- ---------
Operating expenses 41,093 35,261
--------- ---------
Operating income 68,744 53,013
Other income (expense):
Interest income 1,494 1,028
Equity in earnings of unconsolidated affiliates 1,500 1,406
Other income* 4,052 234
Interest expense (2,986) (2,728)
--------- ---------
4,060 (60)
--------- ---------
Income before income taxes 72,804 52,953
Income taxes 26,937 20,122
--------- ---------
Net income $ 45,867 $ 32,831
========= =========
Basic earnings per share $ 0.78 $ 0.58
========= =========
Diluted earnings per share $ 0.69 $ 0.57
========= =========
Weighted average shares outstanding - basic 58,820 56,981
========= =========
Weighted average shares outstanding - diluted 66,927 58,062
========= =========
Dividends per share - common stock $ 0.17 $ -
========= =========
* in the three months ended November 22, 2003, Other Income includes a $5.3
million non-cash gain relating to the consolidation of the partnership that owns
the Company's corporate headquarters in West Greenwich, Rhode Island.
CONSOLIDATED INCOME STATEMENTS
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
(Unaudited)
Nine Months Ended
---------------------------
November 22, November 23,
2003 2002
------------ ------------
(Dollars in thousands,
except per share amounts)
Revenues:
Services $ 692,782 $ 643,119
Sales of products 78,972 65,717
--------- ---------
771,754 708,836
Costs and expenses:
Costs of services 391,593 402,999
Costs of sales 50,533 49,426
--------- ---------
442,126 452,425
--------- ---------
Gross profit 329,628 256,411
Selling, general and administrative 79,498 70,168
Research and development 41,422 24,575
--------- ---------
Operating expenses 120,920 94,743
--------- ---------
Operating income 208,708 161,668
Other income (expense):
Interest income 3,703 2,847
Equity in earnings of unconsolidated affiliates 6,120 3,363
Other income* 3,337 1,912
Interest expense (6,997) (8,371)
--------- ---------
6,163 (249)
--------- ---------
Income before income taxes 214,871 161,419
Income taxes 79,502 61,340
--------- ---------
Net income $ 135,369 $ 100,079
========= =========
Basic earnings per share $ 2.34 $ 1.75
========= =========
Diluted earnings per share $ 2.12 $ 1.71
========= =========
Weighted average shares outstanding - basic 57,882 57,252
========= =========
Weighted average shares outstanding - diluted 64,356 58,529
========= =========
Dividends per share - common stock $ 0.34 $ -
========= =========
* in the nine months ended November 22, 2003, Other Income includes a $5.3
million non-cash gain relating to the consolidation of the partnership that owns
the Company's corporate headquarters in West Greenwich, Rhode Island.
CONSOLIDATED BALANCE SHEETS
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
(Unaudited)
November 22, February 22,
2003 2003
----- ----
ASSETS (Dollars in thousands)
CURRENT ASSETS:
Cash and cash equivalents $ 320,536 $ 116,174
Trade accounts receivable, net 122,718 107,666
Sales-type lease receivables 7,288 4,400
Inventories 58,852 72,287
Deferred income taxes 29,410 29,410
Other current assets 27,202 18,660
----------- -----------
TOTAL CURRENT ASSETS 566,006 348,597
SYSTEMS, EQUIPMENT AND OTHER ASSETS RELATING TO CONTRACTS, net 561,930 410,911
GOODWILL, net 188,809 115,498
OTHER ASSETS 169,232 79,189
----------- -----------
TOTAL ASSETS $ 1,485,977 $ 954,195
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 74,171 $ 74,042
Accrued expenses 52,903 51,200
Employee compensation 32,170 37,494
Advance payments from customers 95,856 52,442
Deferred revenue and advance billings 10,075 17,264
Income taxes payable 56,072 54,043
Taxes other than income taxes 28,017 16,020
Short term borrowings 2,379 2,616
Current portion of long-term debt 9,012 6,992
----------- -----------
TOTAL CURRENT LIABILITIES 360,655 312,113
LONG-TERM DEBT, less current portion 557,912 287,088
OTHER LIABILITIES 51,716 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; 59,065,006 and 56,638,331 shares
outstanding at November 22, 2003 and February 22, 2003, respectively 923 923
Additional paid-in capital 267,759 235,266
Accumulated other comprehensive loss (78,937) (95,488)
Retained earnings 801,204 684,653
----------- -----------
990,949 825,354
Less cost of 33,231,398 and 35,658,073 shares in treasury at
November 22, 2003 and February 22, 2003, respectively (475,255) (509,788)
----------- -----------
515,694 315,566
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,485,977 $ 954,195
=========== ===========
CONSOLIDATED STATEMENTS OF CASH FLOWS
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
(Unaudited)
Nine Months Ended
November 22, November 23,
2003 2002
----- ----
(Dollars in thousands)
NOPERATING ACTIVITIES
et income $ 135,369 $ 100,079
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 81,449 101,858
Intangibles amortization 2,908 4,051
Tax benefit related to stock award plans 11,871 7,299
Non-cash gain from consolidation of West Greenwich Technology
Associates, L.P. (5,292) -
Termination of interest rate swaps - 11,357
Deferred income taxes provision - 1,130
Equity in earnings of unconsolidated affiliates, net of dividends received (263) 559
Other 6,943 5,351
Changes in operating assets and liabilities:
Trade accounts receivable 2,358 11,723
Inventories 22,879 14,944
Advance payments from customers 43,414 5,211
Other assets and liabilities 8,300 17,402
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 309,936 280,964
INVESTING ACTIVITIES
Purchases of systems, equipment and other assets relating to contracts (211,867) (131,221)
Acquisitions (net of cash acquired) (74,174) -
Refundable performance deposit (20,000) -
License fee (12,500) -
Other (9,691) (1,350)
--------- ---------
NET CASH USED FOR INVESTING ACTIVITIES (328,232) (132,571)
FINANCING ACTIVITIES
Net proceeds from issuance of long-term debt 252,527 -
Principal payments on long-term debt (31,688) (46,408)
Proceeds from stock options 22,068 15,842
Dividends paid (19,928) -
Purchases of treasury stock - (57,424)
Tender premiums and fees - (3,434)
Other (3,583) 2,926
--------- ---------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 219,396 (88,498)
Effect of exchange rate changes on cash 3,262 2,519
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 204,362 62,414
Cash and cash equivalents at beginning of period 116,174 35,095
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 320,536 $ 97,509
========= =========