55 Technology Way Telephone: 401 392-1000
West Greenwich, Rhode Island 02817 USA Fax: 401 392-1234
Website: WWW.GTECH.COM
For Immediate Release Contact: Robert K. Vincent
April 15, 2004 Public Affairs
GTECH Corporation
401-392-7452
GTECH FISCAL YEAR 2004 REVENUES EXCEED $1 BILLION
Company Announces Fiscal 2004 Fourth Quarter and Record Year-End Results
WEST GREENWICH, RI - (April 15, 2004) - GTECH Holdings Corporation (NYSE:GTK)
today announced fourth quarter and year-end earnings for fiscal year 2004 ended
February 28, 2004.
"Fiscal 2004 was a record-breaking year at GTECH. We earned record revenues of
$1.051 billion, an increase of seven percent over 2003," said GTECH President
and Chief Executive Officer W. Bruce Turner. "Our net income rose 29 percent to
$183 million and diluted earnings per share increased approximately 17 percent
to $2.84, including the impact of the one-time, non-cash gain in the third
quarter. Our gross profit margins also eclipsed all earlier records, at
approximately 43 percent."
GTECH Senior Vice President and Chief Financial Officer Jaymin B. Patel said,
"We are pleased with the results for both the fourth quarter and the year, and
are confident that our strategic focus, executed by our management team, will
produce solid growth, profitability, and value creation for our shareholders in
fiscal 2005 and beyond."
Operating Results
- -----------------
Revenues for the fourth quarter of fiscal 2004 totaled $279.6 million, up $9.6
million over revenues of $270.0 million in the fourth quarter of fiscal 2003.
Net income was $47.8 million, or $0.72 per diluted share, up 14.0% over net
income of $41.9 million, or $0.72 per diluted share for the same period last
year.
Revenues for fiscal 2004 were $1.05 billion, up 7.4% over revenues of $978.8
million in fiscal 2003. Net income was $183.2 million, or $2.84 per diluted
share, up substantially over net income of $142.0 million, or $2.43 per diluted
share, for the same period last year. Net income in fiscal 2004 includes a
one-time, non-cash, after-tax gain of $3.3 million, or $0.05 per diluted share,
associated with the consolidation of the partnership that owns the Company's
world headquarters in West Greenwich, Rhode Island.
Cash Flow and Investments
- -------------------------
During fiscal 2004, the Company generated $414.3 million of cash from
operations. This was principally used to fund investments in new contract assets
and the acquisitions of PolCard and Interlott, totaling $390.6 million. At the
end of fiscal 2004, GTECH had no borrowings under its $300 million credit
facility.
During fiscal 2004, the Company paid cash dividends of approximately $30.0
million.
Financial Outlook
- -----------------
The Company provided guidance for the full year and first quarter of fiscal
2005. For the fiscal year ending February 26, 2005, the Company expects total
revenue growth of approximately 20% to 21%, reflecting full year contributions
from PolCard and Interlott, and partial year contributions from Spielo and
Leeward Islands Lottery Holding Company (LILHCo). The Company expects service
revenue growth in the range of 7% to 9%, reflecting a 4% to 6% increase in same
store sales, net contract wins, and the impact of acquisitions, offset by
several 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 $210 million to $220 million.
GTECH expects to maintain service margins in the range of 41% to 43% and expects
product margins in the range of 36% to 38%.
The Company will record a gain on the sale of its equity interest in Harrington
Raceway, and will incur a net expense associated with the tender and make-whole
premiums related to the early retirement of its 7.87% private placement notes
due May 2007. The net impact of these transactions will result in a pre-tax gain
in the range of $5 million to $6 million to be recorded in other income in the
first quarter.
Based upon a diluted share estimate of 68.0 million shares, the Company believes
that earnings per share will be in the range of $3.00 to $3.10 for fiscal 2005.
This estimate includes the net impact of the first quarter transactions
previously described.
For the first quarter of fiscal 2005, ending May 29, 2004, the Company expects
service revenues to increase 12% to 14% and product sales in the range of $30
million to $35 million. The Company expects service margins in the range of 41%
to 43% and product margins in the range of 37% to 39%. Based upon this operating
outlook, combined with the one-time events mentioned above, the Company expects
fully diluted earnings per share to be in the range of $0.72 to $0.77 per share.
Fourth Quarter and Full Year Highlights
- ---------------------------------------
In the fourth quarter of fiscal 2004, GTECH continued to execute against its
growth strategy by securing contracts with new and existing customers
internationally.
The Beijing Welfare Lottery Center signed a new multi-year contract with GTECH
for Club Keno(R) and additional lottery products and services. In addition, the
Company's customer in Mexico, Pronosticos para la Asistencia Publica, awarded
GTECH a new six-year online lottery contract, and Sistemas Tecnicos de Loterias
del Estado (STL), the operator of the online system for the National Lottery in
Spain, signed a contract with GTECH for 2,500 Altura(R) terminals.
Also in the quarter, the Company signed a 10-year integrated services contract
with the Mahapola Higher Education Scholarship Trust Fund to provide online,
instant, and passive lottery technology and management services in Sri Lanka.
Last month, a lawsuit was filed by the Development Lotteries Board, a Sri Lanka
state agency that operates a competing national lottery, alleging that the
lottery contract was an illegal delegation by Mahapola, in excess of its
statutory authority to conduct a lottery. The Company expects this matter to be
resolved without material impact on its fiscal 2005 outlook.
After the close of the quarter, the Illinois Lottery notified GTECH of its
intent to award a five-year contract to provide Instant Ticket Dispensing
Machines (ITDMs) and ongoing maintenance and support services, marking the
Company's first win with the combined GTECH/Interlott brand and technology. In
addition, GTECH was named the apparent successful bidder to provide the
Washington Lottery with Lottery Product Vending Machines (LPVMs) under a
three-year contract.
In fiscal 2004, GTECH secured multi-year integrated services contracts with
customers in Wisconsin, Florida, and Tennessee following highly competitive
procurements. The Company also successfully delivered its Enterprise Series
architecture to customers in California, Georgia, and Tennessee.
"In total, GTECH was awarded 11 new contracts and 10 extensions during fiscal
2004 representing over $1.8 billion in revenues to GTECH over the life of the
contracts," continued Mr. Turner.
Also in the fiscal year, GTECH successfully completed the acquisitions of
PolCard and Interlott. The Company expects to finalize the acquisitions of
Spielo and LILHCo in June.
Other Developments - Brazil
- ---------------------------
In late March 2004, federal prosecutors in Brazil recommended that criminal
charges be brought against nine individuals, including four senior officers of
GTECH's customer, Caixa Economica Federal (Caixa); a former senior vice
president of GTECH Holdings Corporation and president of GTECH Brazil; and the
marketing director of GTECH Brazil. Individuals related to GTECH could be
charged with offering an improper inducement in connection with the negotiation
of the Caixa contract extension, and with effectively co-authoring or aiding and
abetting certain allegedly fraudulent or inappropriate management practices of
the Caixa management who agreed to enter into the contract extension.
The recommendations require judicial review and concurrence to proceed.
Controversies have arisen in relation to the scope and manner of the
investigation and the political motivation of the prosecutor.
The Company is cooperating fully with investigators and has encouraged employees
and former employees to do the same. Because these proceedings are in their
initial stages, it is impossible for GTECH to assess their merits, or their
financial statement impact, if there will be any. The Company's reputation for
integrity is an important factor in its business dealings with lottery and other
governmental agencies. The Brazilian situation is a serious matter and the
Company is treating it as such. As with any such allegations, if proven, they
potentially could have a negative impact on the Company's business.
As previously stated, GTECH believes that the Company has responded
appropriately in this matter. In light of the prosecutor's recommendations
against GTECH's representatives in Brazil, the Company has broadened its
investigation to make certain that all parties involved acted appropriately.
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; (xiii) the possibility of adverse determinations in pending legal
proceedings; (xiv) the possibility that the Company's non-lottery ventures may
fail; and (xv) the Company's business prospects and future success rely heavily
upon the integrity of its employees and executives and the security of its
systems.
ooo
GTECH, a leading global information technology company with over $1 billion in
revenues and 5,000 people in 44 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 BALANCE SHEETS
February 28, February 22,
2004 2003
----- ----
ASSETS (Dollars in thousands)
CURRENT ASSETS:
Cash and cash equivalents $ 129,339 $ 116,174
Investment securities available-for-sale 221,850 --
Trade accounts receivable, net 118,902 107,666
Sales-type lease receivables 7,705 4,400
Inventories 76,784 72,287
Deferred income taxes 34,396 29,410
Other current assets 24,426 18,660
----------- -----------
TOTAL CURRENT ASSETS 613,402 348,597
SYSTEMS, EQUIPMENT AND OTHER ASSETS RELATING TO CONTRACTS, net 591,362 410,911
GOODWILL, net 188,612 115,498
PROPERTY, PLANT AND EQUIPMENT, net 57,576 24,510
INTANGIBLE ASSETS, net 28,231 2,190
REFUNDABLE PERFORMANCE DEPOSIT 20,000 --
SALES-TYPE LEASE RECEIVABLES 17,653 10,854
DEFERRED INCOME TAXES -- 4,266
OTHER ASSETS 42,295 37,369
----------- -----------
TOTAL ASSETS $ 1,559,131 $ 954,195
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 80,004 $ 74,042
Accrued expenses 47,428 51,200
Employee compensation 33,981 37,494
Advance payments from customers 104,128 52,442
Deferred revenue and advance billings 14,459 17,264
Income taxes payable 12,394 54,043
Taxes other than income taxes 19,459 16,020
Short term borrowings -- 2,616
Current portion of long-term debt 106,319 6,992
----------- -----------
TOTAL CURRENT LIABILITIES 418,172 312,113
LONG-TERM DEBT, less current portion 463,215 287,088
OTHER LIABILITIES 53,736 39,428
DEFERRED INCOME TAXES 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 - 150,000,000 shares authorized,
92,295,404 and 92,296,404 shares issued; 59,197,584 and 56,638,331 shares
outstanding at February 28, 2004 and February 22, 2003, respectively 923 923
Additional paid-in capital 266,320 235,266
Accumulated other comprehensive loss (70,508) (95,488)
Retained earnings 839,270 684,653
----------- -----------
1,036,005 825,354
Less cost of 33,097,820 and 35,658,073 shares in treasury at
February 28, 2004 and February 22, 2003, respectively (473,716) (509,788)
----------- -----------
562,289 315,566
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,559,131 $ 954,195
=========== ===========
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
Fourth Quarter
Fiscal Year Ended
------------------------------
February 28, February 22,
2004 2003
----- ----
(Dollars in thousands,
except per share amounts)
Revenues:
Services $ 264,689 $ 225,777
Sales of products 14,887 44,177
--------- ---------
279,576 269,954
Costs and expenses:
Costs of services 146,246 132,042
Costs of sales 8,693 29,517
--------- ---------
154,939 161,559
--------- ---------
Gross profit 124,637 108,395
Selling, general and administrative 29,594 25,962
Research and development 15,896 18,277
Special credit -- (1,121)
--------- ---------
Operating expenses 45,490 43,118
--------- ---------
Operating income 79,147 65,277
Other income (expense):
Interest income 2,030 990
Equity in earnings of unconsolidated affiliates 116 4,013
Other income (expense) (1,448) 263
Interest expense (3,922) (2,896)
--------- ---------
(3,224) 2,370
--------- ---------
Income before income taxes 75,923 67,647
Income taxes 28,092 25,705
--------- ---------
Net income $ 47,831 $ 41,942
========= =========
Basic earnings per share $ 0.81 $ 0.74
========= =========
Diluted earnings per share $ 0.72 $ 0.72
========= =========
Weighted average shares outstanding - basic 59,140 56,571
========= =========
Weighted average shares outstanding - diluted 67,368 57,980
========= =========
Dividends per share - common stock $ 0.17 $ --
========= =========
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
Fiscal Year Ended
---------------------------------------------
February 28, February 22, February 23,
2004 2003 2002
----- ----- ----
(Dollars in thousands, except per share amounts)
Revenues:
Services $ 957,471 $ 868,896 $ 831,787
Sales of products 93,859 109,894 177,914
----------- ----------- -----------
1,051,330 978,790 1,009,701
Costs and expenses:
Costs of services 537,839 535,041 586,308
Costs of sales 59,226 78,943 136,452
----------- ----------- -----------
597,065 613,984 722,760
----------- ----------- -----------
Gross profit 454,265 364,806 286,941
Selling, general and administrative 109,092 96,130 112,763
Research and development 57,318 42,852 33,779
Goodwill amortization -- -- 6,049
Special credit -- (1,121) --
----------- ----------- -----------
Operating expenses 166,410 137,861 152,591
----------- ----------- -----------
Operating income 287,855 226,945 134,350
Other income (expense):
Interest income 5,733 3,837 5,450
Equity in earnings of unconsolidated affiliates 6,236 7,376 3,959
Other income (expense) 1,889 2,175 (11,163)
Interest expense (10,919) (11,267) (22,876)
----------- ----------- -----------
2,939 2,121 (24,630)
----------- ----------- -----------
Income before income taxes 290,794 229,066 109,720
Income taxes 107,594 87,045 41,694
----------- ----------- -----------
Net income $ 183,200 $ 142,021 $ 68,026
=========== =========== ===========
Basic earnings per share $ 3.15 $ 2.49 $ 1.15
=========== =========== ===========
Diluted earnings per share $ 2.84 $ 2.43 $ 1.13
=========== =========== ===========
Weighted average shares outstanding - basic 58,232 57,081 58,998
=========== =========== ===========
Weighted average shares outstanding - diluted 65,144 58,391 60,318
=========== =========== ===========
Dividends per share - common stock $ 0.51 $ -- $ --
=========== =========== ===========
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year Ended
----------------------------------------
February 28, February 22, February 23,
2004 2003 2002
----- ----- ----
(Dollars in thousands)
OPERATING ACTIVITIES
Net income $ 183,200 $ 142,021 $ 68,026
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 115,324 133,452 154,071
Intangibles amortization 3,735 4,733 8,423
Goodwill amortization -- -- 6,049
Deferred income taxes benefit (provision) 59,457 (1,567) (2,175)
Tax benefit related to stock award plans 10,432 8,037 4,879
Minority interest 4,502 578 160
Non-cash gain from consolidation of West Greenwich Technology Associates, L.P. (5,292) -- --
Termination of interest rate swaps -- 11,357 2,364
Asset impairment charges -- -- 27,183
Equity in earnings of unconsolidated affiliates, net of dividends received 1,672 316 (815)
Other 9,995 2,740 12,240
Changes in operating assets and liabilities:
Trade accounts receivable 3,788 (12,007) 19,234
Inventories 3,030 14,387 31,381
Accounts payable 2,186 13,734 (5,886)
Advance payments from customers 51,601 (10,109) 24,518
Income taxes payable (27,649) 5,590 (10,645)
Other assets and liabilities (1,645) 18,994 6,223
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 414,336 332,256 345,230
INVESTING ACTIVITIES
Purchases of systems, equipment and other assets relating to contracts (268,010) (155,556) (176,511)
Purchases of available-for-sale investment securities (242,050) -- --
Maturities and sales of available-for-sale investment securities 20,200 -- --
Acquisitions (net of cash acquired) (74,442) -- (552)
Refundable performance deposit (20,000) -- --
Purchases of property, plant and equipment (12,772) (5,612) (4,822)
License fee (12,500) -- --
Investments in and advances to unconsolidated subsidiaries (2,885) -- --
Proceeds from sale of investments -- 2,560 2,098
Proceeds from the sale of majority interest in a subsidiary -- -- 10,000
Cash received from affiliates -- -- 3,786
Other -- -- 1,275
--------- --------- ---------
NET CASH USED FOR INVESTING ACTIVITIES (612,459) (158,608) (164,726)
FINANCING ACTIVITIES
Net proceeds from issuance of long-term debt 252,588 -- 359,810
Principal payments on long-term debt (33,293) (47,416) (349,130)
Proceeds from stock options 23,943 16,867 44,814
Dividends paid (29,977) -- --
Debt issuance costs (2,125) (120) (6,539)
Purchases of treasury stock -- (64,032) (219,322)
Tender premiums and fees -- (3,434) (17,930)
Other (4,199) 1,942 (44)
--------- --------- ---------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 206,937 (96,193) (188,341)
Effect of exchange rate changes on cash 4,351 3,624 (4,016)
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 13,165 81,079 (11,853)
Cash and cash equivalents at beginning of year 116,174 35,095 46,948
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 129,339 $ 116,174 $ 35,095
========= ========= =========