GTECH Announces Strong Second Quarter Results WEST GREENWICH, R.I.,
Sept. 21 /PRNewswire-FirstCall/ -- GTECH Holdings Corporation
(NYSE:GTK) today announced second quarter earnings for fiscal year
2005 ended August 28, 2004. "It was yet another quarter of steady
growth and profitability for GTECH," said GTECH President and Chief
Executive Officer W. Bruce Turner. "Total revenues grew
approximately 17 percent, quarter-over-quarter, driven by continued
improvements in same-store sales, the benefit of recent
acquisitions, and strong product sales. In addition to a solid
financial performance, we had a successful quarter across all three
GTECH vertical markets -- lottery, gaming solutions, and commercial
services." "We are pleased with the continued strength of our core
business and the progress we have made in integrating our recent
acquisitions," said GTECH Senior Vice President and Chief Financial
Officer Jaymin B. Patel. "We are excited about the opportunities we
see in each of the markets we serve, and based upon our current
outlook, we are confident we can achieve our goals and objectives
in the current fiscal year and beyond." Operating Results Earnings
and dividends per share for the three and six month periods of the
prior year have been restated to reflect the 2-for-1 common stock
split effected in the form of a stock dividend, which was
distributed on July 30, 2004, to shareholders of record as of July
1, 2004. Revenues for the second quarter of fiscal 2005 were $323.5
million, up 16.7% over revenues of $277.2 million in the second
quarter of fiscal 2004. Net income was $53.1 million, or $0.40 per
diluted share, up 9.5% over net income of $48.5 million, or $0.37
per diluted share, for the same period last year. Revenues for the
first six months of fiscal 2005 were $603.7 million, up 16.8% over
revenues of $516.8 million in the first six months of fiscal 2004.
Net income was $106.7 million, or $0.80 per diluted share, up 19.2%
over net income of $89.5 million, or $0.72 per diluted share, for
the same period last year. Net income in the first six months of
fiscal 2005 includes a net, one- time, after-tax gain of $6.4
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 of charges associated with the early
retirement of the remainder of the Company's 2007 private placement
notes. Cash Flow and Investments During the first six months of
fiscal 2005, the Company generated $171.8 million of cash from
operations which, along with other sources of liquidity, was
principally used to fund the Spielo Manufacturing Incorporated and
Leeward Islands Lottery Holding Company, Inc. acquisitions of
$192.4 million, and to purchase systems, equipment and other assets
relating to contracts of $113.0 million. In addition, the Company
repaid the remaining $90.0 million of its 7.87% Senior Notes;
repurchased $82.8 million, or 3,649,500 shares, of the Company's
common stock; and paid cash dividends of $20.1 million. At the end
of the fiscal 2005 second quarter, GTECH had $15.0 million of
borrowings under its $300 million credit facility. Financial
Outlook The Company provided guidance for the full year and third
quarter of fiscal 2005. For the fiscal year ending February 26,
2005, GTECH expects service revenue growth in the range of 5% to
7%, and product sales in the range of $210 million to $220 million.
The Company continues to expect service profit margins to be in the
range of 40% to 42%, and product sale profit margins to be in the
range of 36% to 38%. The Company expects the effective tax rate for
the fiscal year to be in the range of 35% to 36%, compared to 37%
reported in the first half of the fiscal year. It expects the most
significant portion of the rate reduction will take affect in the
third quarter. Based upon the results of the first half of the
fiscal year and the current outlook, it continues to expect
earnings per share for fiscal 2005 to be in the range of $1.43 to
$1.48 on a fully-diluted basis, reflecting the two-for-one stock
split that occurred on July 30, 2004. For the third quarter of
fiscal 2005, ending November 27, 2004, the Company expects service
revenue growth in the range of 6% to 8%, and product sales in the
range of $55 million to $65 million. The Company expects service
margins in the range of 38% to 40%, and product margins in the
range of 37% to 39%. It expects the effective tax rate for the
quarter to be approximately 33%. Accordingly, the Company expects
earnings per share to be in the range of $0.33 to $0.36 per share
for the quarter. This compares with $0.35 reported in the same
period last year, which included a one-time, after-tax, non-cash
gain of $3.3 million, or $0.03 per diluted share, associated with
the consolidation of the partnership that owns the Company's
headquarters facility in Rhode Island. Second Quarter Highlights In
the second quarter, GTECH continued to strengthen its market
leadership in the core lottery business. Internationally, the
Company was chosen to provide 5,000 additional handheld lottery
terminals to Organizacion Nacional de Ciegos Espanoles (ONCE) in
Spain, following a previous order of 7,000 handheld terminals also
awarded to GTECH by ONCE in the second quarter. In addition,
Cogetech, a joint venture in which GTECH is the technology and
services provider, was named a successful applicant for a five-year
license to operate a gaming machine network and central system in
Italy. The Company also signed a long-term integrated services
contract to provide a complete video lottery solution in Jamaica.
In Mexico, GTECH's original contract award with Pronosticos para la
Asistencia Publica was reinstated in August, and the new six-year
integrated services contract was ultimately signed by both parties
in early September 2004. Domestically, GTECH signed a three-year
contract extension in Oregon and was awarded a new Instant Ticket
Vending Machine (ITVM) contract in Maine. On the commercial
services side, GTECH began selling prepaid mobile phone top-ups
through its 200 lottery terminals in Barbados in June 2004. The
Company also launched bill payment services at approximately 700
terminals throughout Poland utilizing the PolCard network. Also in
the quarter, GTECH unveiled GamePoint(TM), the Company's new all-
in-one instant and online lottery terminal solution. The innovative
GamePoint terminal dispenses both instant and online tickets,
combining GTECH's world- leading online expertise and Interlott's
instant ticket self-service leadership. "In total, we secured
between $220 million and $240 million in total incremental future
revenues this last quarter," continued Mr. Turner. After the close
of the quarter, GTECH signed a three-year contract extension with
the Minnesota State Lottery to commence on February 10, 2008. In
addition, to advance its commercial services strategy, the Company
recently announced it had acquired BillBird S.A., the leading
provider of electronic bill payment services in Poland. Other
Business Developments Sri Lanka GTECH's customer in Sri Lanka, the
Mahapola Higher Education Scholarship Trust Fund (MTF), was
recently notified by the Supreme Court of the Democratic Socialist
Republic of Sri Lanka that it may resume with the implementation of
its lottery games in the country. In March 2004, lawsuits were
filed by competitors challenging GTECH's contract award and thus
delayed the implementation of the instant ticket and online games
in Sri Lanka. All such lawsuits have been settled, without any
payment by GTECH, and have been dismissed. 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. 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, a
leading global information technology company with over $1 billion
in revenues and more than 5,500 people in 45 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
commercial gaming technology and financial services transaction
processing. For more information about the Company, please visit
GTECH's website at http://www.gtech.com/. GTECH HOLDINGS
CORPORATION AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS
(Unaudited) Three Months Ended August 28, August 23, 2004 2003
(Dollars in thousands, except per share amounts) Revenues: Services
$248,114 $238,019 Sales of products 75,401 39,228 323,515 277,247
Costs and expenses: Costs of services 148,481 132,805 Costs of
sales 43,874 28,810 192,355 161,615 Gross profit 131,160 115,632
Selling, general and administrative 29,889 27,051 Research and
development 12,647 14,106 Operating expenses 42,536 41,157
Operating income 88,624 74,475 Other income (expense): Interest
income 981 1,021 Equity in earnings of unconsolidated affiliates
293 2,691 Other income (expense) (1,924) 465 Interest expense
(3,719) (1,705) (4,369) 2,472 Income before income taxes 84,255
76,947 Income taxes 31,174 28,471 Net income $53,081 $48,476 Basic
earnings per share $0.45 $0.42 Diluted earnings per share $0.40
$0.37 Weighted average shares outstanding - basic 117,070 115,836
Weighted average shares outstanding - diluted 132,743 131,815
Dividends per share - common stock $0.085 $0.085 GTECH HOLDINGS
CORPORATION AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS
(Unaudited) Six Months Ended August 28, August 23, 2004 2003
(Dollars in thousands, except per share amounts) Revenues: Services
$501,440 $461,557 Sales of products 102,280 55,275 603,720 516,832
Costs and expenses: Costs of services 295,774 259,602 Costs of
sales 59,791 37,439 355,565 297,041 Gross profit 248,155 219,791
Selling, general and administrative 57,524 51,331 Research and
development 25,734 28,496 Operating expenses 83,258 79,827
Operating income 164,897 139,964 Other income (expense): Interest
income 2,316 2,209 Equity in earnings of unconsolidated affiliates
1,599 4,620 Other income (expense) 8,601 (715) Interest expense
(8,055) (4,011) 4,461 2,103 Income before income taxes 169,358
142,067 Income taxes 62,662 52,565 Net income $106,696 $89,502
Basic earnings per share $0.91 $0.78 Diluted earnings per share
$0.80 $0.72 Weighted average shares outstanding - basic 117,848
114,826 Weighted average shares outstanding - diluted 133,860
125,988 Dividends per share - common stock $0.17 $0.085 GTECH
HOLDINGS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(Unaudited) August 28, February 28, 2004 2004 ASSETS (Dollars in
thousands) CURRENT ASSETS: Cash and cash equivalents $30,267
$129,339 Investment securities available-for- sale - 221,850 Trade
accounts receivable, net 134,449 118,902 Sales-type lease
receivables 7,848 7,705 Inventories 94,025 76,784 Deferred income
taxes 32,559 34,396 Other current assets 31,868 24,426 TOTAL
CURRENT ASSETS 331,016 613,402 SYSTEMS, EQUIPMENT AND OTHER ASSETS
RELATING TO CONTRACTS, net 649,800 591,362 GOODWILL, net 324,916
188,612 PROPERTY, PLANT AND EQUIPMENT, net 66,484 57,576 INTANGIBLE
ASSETS, net 72,614 28,231 REFUNDABLE PERFORMANCE DEPOSIT 20,000
20,000 SALES-TYPE LEASE RECEIVABLES 13,664 17,653 OTHER ASSETS
43,858 42,295 TOTAL ASSETS $1,522,352 $1,559,131 LIABILITIES AND
SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $73,344
$80,004 Accrued expenses 50,881 47,428 Employee compensation 19,798
33,981 Advance payments from customers 70,955 104,128 Deferred
revenue and advance billings 32,159 14,459 Income taxes payable
27,173 12,394 Taxes other than income taxes 19,443 19,459 Current
portion of long-term debt 4,848 106,319 TOTAL CURRENT LIABILITIES
298,601 418,172 LONG-TERM DEBT, less current portion 474,099
463,215 OTHER LIABILITIES 79,265 53,736 DEFERRED INCOME TAXES
88,233 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 - 200,000,000 shares authorized, 116,551,144 and 184,590,808
shares issued; 115,621,098 and 118,395,168 shares outstanding at
August 28, 2004 and February 28, 2004, respectively (shares
adjusted to reflect July 2004 two-for-one stock split and treasury
stock retirement) 1,166 923 Additional paid-in capital 272,935
266,320 Accumulated other comprehensive loss (69,369) (70,508)
Retained earnings 396,629 839,270 601,361 1,036,005 Less cost of
930,046 and 66,195,640 shares in treasury at August 28, 2004 and
February 28, 2004, respectively (shares adjusted to reflect July
2004 two-for-one stock split and treasury stock retirement)
(19,207) (473,716) 582,154 562,289 TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,522,352 $1,559,131 GTECH HOLDINGS
CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) Six Months Ended August 28, August 23, 2004 2003
(Dollars in thousands) OPERATING ACTIVITIES Net income $106,696
$89,502 Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation 68,504 51,924 Intangibles
amortization 4,510 1,609 Deferred income taxes benefit 13,904 - Tax
benefit related to stock award plans 6,615 10,696 Net charge
associated with the early retirement of debt 751 - Gain on sale of
investment (10,924) - Other 7,977 3,612 Changes in operating assets
and liabilities: Trade accounts receivable (11,894) 9,769
Inventories (5,255) 14,839 Accounts payable (9,111) (3,723)
Employee compensation (15,996) (8,437) Advance payments from
customers (5,904) 10,066 Deferred revenue and advance billings
17,700 (4,610) Income taxes payable 15,664 (3,858) Other assets and
liabilities (11,480) (935) NET CASH PROVIDED BY OPERATING
ACTIVITIES 171,757 170,454 INVESTING ACTIVITIES Acquisitions (net
of cash acquired) (192,402) (41,023) Purchases of systems,
equipment and other assets relating to contracts (113,011)
(143,774) Purchases of available-for-sale investment securities
(50,150) - Maturities and sales of available- for-sale investment
securities 272,000 - Proceeds from sale of investment 11,773 -
Purchases of property, plant and equipment (6,359) (6,285) Increase
in restricted cash (5,112) - Investments in and advances to
unconsolidated subsidiaries (1,435) (1,185) License fee - (12,500)
NET CASH USED FOR INVESTING ACTIVITIES (84,696) (204,767) FINANCING
ACTIVITIES Net proceeds from issuance of long- term debt 15,000
1,409 Principal payments on long-term debt (92,249) (2,146)
Purchases of treasury stock (82,808) - Redemption premium paid in
connection with the early retirement of debt (10,610) - Dividends
paid (20,135) (9,883) Proceeds from stock options 4,966 21,101
Other 739 (484) NET CASH PROVIDED BY (USED FOR) FINANCING
ACTIVITIES (185,097) 9,997 Effect of exchange rate changes on cash
(1,036) 2,464 DECREASE IN CASH AND CASH EQUIVALENTS (99,072)
(21,852) Cash and cash equivalents at beginning of period 129,339
116,174 CASH AND CASH EQUIVALENTS AT END OF PERIOD $30,267 $94,322
Contact: Robert K. Vincent Public Affairs GTECH Corporation
401-392-7452 DATASOURCE: GTECH CONTACT: Robert K. Vincent, Public
Affairs, GTECH Corporation, +1-401-392-7452 Web site:
http://www.gtech.com/
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