GTECH Announces Strong Second Quarter Results

Share Name	Share Symbol	Market	Type
Gtech	NYSE:GTK	NYSE	Ordinary Share

Gtech (NYSE:GTK)
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Company Increases Free Cash Flow Outlook; Now Expects to Generate $210 Million to $230 Million in Fiscal 2006 WEST GREENWICH, R.I., Sept. 23 /PRNewswire-FirstCall/ -- GTECH Holdings Corporation (NYSE:GTK) today announced second quarter earnings for fiscal year 2006, which ended August 27, 2005. "GTECH experienced a significant quarter-over-quarter increase in service revenues, despite difficult comparisons due to the significant jackpot activity in the second quarter of last year," said GTECH President and Chief Executive Officer W. Bruce Turner. "In addition, we clearly benefited from increased revenue contributions from newer lottery service contracts such as Florida, Virginia, and LILHCo's Caribbean markets." "We are pleased with the continued strength of our core lottery business, and we are excited about the opportunities we see in each of the markets we serve," said GTECH Senior Vice President and Chief Financial Officer Jaymin B. Patel. "Based upon our current outlook, we are confident we can achieve our goals and objectives in the current fiscal year and beyond." Operating Results Revenues for the second quarter of fiscal 2006 were $309.9 million, down 4.2% from revenues of $323.5 million in the second quarter of fiscal 2005. Net income was $49.0 million, or $0.38 per diluted share, compared to net income of $53.1 million, or $0.40 per diluted share for the same period last year. Revenues for the first six months of fiscal 2006 were $636.3 million, up 5.4% over revenues of $603.7 million in the first six months of fiscal 2005. Net income was $103.8 million, or $0.80 per diluted share, compared to net income of $106.7 million, or $0.80 per diluted share for the same period last year. Net income in the first six months of the prior year includes a one- time, after-tax gain of $6.9 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. Prior year earnings and dividends per share reflect the 2-for-1 common stock split declared in June 2004. Cash Flow and Investments During the first six months of fiscal 2006, the Company generated $215.2 million of cash from operations. This cash was principally used to fund $59.9 million of systems, equipment, and other assets relating to contracts; to repurchase $32.1 million, or 1,326,100 shares of the Company's common stock; and to pay cash dividends of $20.3 million. At August 27, 2005, the Company had $167.8 million of cash and cash equivalents and $236.2 million of short- term investment securities on hand. At the end of the second quarter of fiscal 2006, the Company had no borrowings under its $500 million senior revolving credit facility. Financial Outlook The Company provided guidance for the full year and third quarter of fiscal 2006. For the fiscal year ending February 25, 2006, the Company expects service revenue growth, over fiscal 2005 service revenues, to be in the range of 10% to 12%, and product sales in the range of $190 million to $210 million. The Company expects service margins to be in the range of 40% to 42%, and product sale margins to be in the range of 38% to 40%. Based upon this outlook, the Company continues to expect earnings per share for fiscal 2006 to be in the range of $1.64 to $1.70 on a fully-diluted basis. Based upon the current operating outlook and investment forecast, the Company now expects to generate free cash flows in the range of $210 million to $230 million, prior to financing dividends, potential stock repurchases, or acquisitions. This is approximately 15% higher than previously anticipated. For the third quarter of fiscal 2006, ending November 26, 2005, the Company expects service revenue growth, over service revenues for the third quarter of fiscal 2005, to be in the range of 9% to 10%, and product sales in the range of $30 million to $40 million. The Company expects service margins to be approximately 40% and product sale margins in the range of 38% to 40%. Accordingly, the Company expects earnings per share to be in the range of $0.34 to $0.37 per share for the quarter. Business Highlights During the second quarter, GTECH continued to grow and defend its core lottery business. Domestically, Washington's Lottery selected GTECH to negotiate a long-term contract for a new online and instant lottery system, terminals, communications network, and ongoing services, following a competitive procurement. Washington has been a GTECH customer since 1995. In Ohio, GTECH signed a two-year online/instant ticket system extension and a separate two- year extension for the lease of Instant Ticket Vending Machines (ITVMs). The Hoosier Lottery in Indiana signed a two-year lease agreement with GTECH for approximately 700 ITVMs. Additionally, a three-year contract was finalized in New Hampshire for 300 ITVMs. In both Indiana and New Hampshire, GTECH provides field service for the machines. Internationally, GTECH signed an agreement, following a competitive bidding process, with the New Zealand Lotteries Commission for a complete lottery system conversion to include a new integrated online and instant lottery system and new terminals. GTECH's joint venture in Thailand, LOXLEY GTECH Technology Co. Ltd., signed a five-year agreement to provide equipment and services for a national online lottery in Thailand. The Company's customer in Switzerland, Societe de la Loterie de la Suisse Romande (LoRo), successfully negotiated a new software/hardware maintenance and support services agreement, and a new software license agreement with GTECH. In addition, the Company signed its previously-awarded product sale agreement with LoRo for a new integrated online and instant-ticket lottery system, Altura(R) terminals, and communications network. In Germany, GTECH signed a five-year agreement to provide ongoing software support and enhancements to Westdeutsche Lotterie GmbH & Co. OHG (WestLotto), the operator of online and instant-ticket lottery games in the German state of Nordrhein-Westfalen. Organizacion Nacional de Ciegos Espanoles (ONCE), the $3 billion lottery operated by the Spanish National Organization for the Blind, will receive 5,000 additional handheld lottery terminals, bringing the total handheld terminals ordered to approximately 24,000. GTECH will also upgrade ONCE's central system hardware. Following a competitive procurement, the operator of the French National Lottery, La Francaise Des Jeux (FDJ), signed an agreement with GTECH to receive a minimum of 575 ITVMs. Additionally, the Company signed a separate agreement with FDJ to provide ITVM repair services over an initial term of six years. Other Business Developments During the quarter, the Company, which presently owns approximately 63% of PolCard SA, entered into a share purchase agreement with an affiliate of Innova Capital Sp. z o.o. to purchase additional equity comprising approximately 12% of PolCard, for a purchase price of approximately $21.5 million. This transaction is expected to close in the Company's fiscal 2006 third quarter. 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 is a leading gaming technology and services company. With more than $1.25 billion in annual revenues and 5,300 people in over 50 countries, GTECH provides integrated technology, creative content, and business services to effectively manage and grow today's evolving gaming markets. In targeted emerging economies, GTECH also leverages its operational presence and infrastructure to supply commercial transaction processing services. For more information about the Company, please visit GTECH's website at http://www.gtech.com/. Contact: Robert K. Vincent Public Affairs GTECH Corporation +1-401-392-7452 GTECH HOLDINGS CORPORATION AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS (Unaudited) Three Months Ended August 27, August 28, 2005 2004 (Dollars in thousands, except per share amounts) Revenues: Services $266,341 $248,114 Sales of products 43,601 75,401 309,942 323,515 Costs and expenses: Costs of services 161,624 148,481 Costs of sales 24,744 43,874 186,368 192,355 Gross profit 123,574 131,160 Selling, general and administrative 29,838 29,889 Research and development 11,243 12,647 Operating expenses 41,081 42,536 Operating income 82,493 88,624 Other income (expense): Interest income 2,105 981 Equity in earnings of unconsolidated affiliates 531 293 Other expense (638) (1,924) Interest expense (8,005) (3,719) (6,007) (4,369) Income before income taxes 76,486 84,255 Income taxes 27,534 31,174 Net income $48,952 $53,081 Basic earnings per share $0.41 $0.45 Diluted earnings per share $0.38 $0.40 Weighted average shares outstanding - basic 120,851 117,070 Weighted average shares outstanding - diluted 130,052 132,743 Cash dividends declared per common share $0.085 $0.085 GTECH HOLDINGS CORPORATION AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS (Unaudited) Six Months Ended August 27, August 28, 2005 2004 (Dollars in thousands, except per share amounts) Revenues: Services $557,705 $501,440 Sales of products 78,636 102,280 636,341 603,720 Costs and expenses: Costs of services 330,541 295,774 Costs of sales 46,348 59,791 376,889 355,565 Gross profit 259,452 248,155 Selling, general and administrative 61,857 57,524 Research and development 24,181 25,734 Operating expenses 86,038 83,258 Operating income 173,414 164,897 Other income (expense): Interest income 4,150 2,316 Equity in earnings of unconsolidated affiliates 2,318 1,599 Other income (expense) (2,432) 8,601 Interest expense (15,270) (8,055) (11,234) 4,461 Income before income taxes 162,180 169,358 Income taxes 58,384 62,662 Net income $103,796 $106,696 Basic earnings per share $0.88 $0.91 Diluted earnings per share $0.80 $0.80 Weighted average shares outstanding -- basic 117,748 117,848 Weighted average shares outstanding -- diluted 129,947 133,860 Cash dividends declared per common share $0.17 $0.17 GTECH HOLDINGS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) August 27, February 26, 2005 2005 ASSETS (Dollars in thousands) CURRENT ASSETS: Cash and cash equivalents $167,819 $94,446 Investment securities available-for- sale 236,175 196,825 Trade accounts receivable, net 146,310 168,706 Sales-type lease receivables 3,220 3,461 Refundable performance deposit 8,000 8,000 Inventories 64,115 61,135 Deferred income taxes 26,378 31,435 Other current assets 31,387 26,646 TOTAL CURRENT ASSETS 683,404 590,654 SYSTEMS, EQUIPMENT AND OTHER ASSETS RELATING TO CONTRACTS, net 692,624 720,438 GOODWILL, net 330,954 331,022 PROPERTY, PLANT AND EQUIPMENT, net 86,772 74,558 INTANGIBLE ASSETS, net 67,283 70,839 REFUNDABLE PERFORMANCE DEPOSIT 12,000 12,000 SALES-TYPE LEASE RECEIVABLES 3,387 4,756 OTHER ASSETS 40,568 50,874 TOTAL ASSETS $1,916,992 $1,855,141 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $59,453 $99,234 Accrued expenses 51,298 54,227 Employee compensation 27,321 21,862 Advance payments from customers 43,880 42,865 Deferred revenue and advance billings 26,883 29,705 Income taxes payable 37,519 16,499 Taxes other than income taxes 17,390 16,572 Short term borrowings 1,842 334 Current portion of long-term debt 3,474 2,476 TOTAL CURRENT LIABILITIES 269,060 283,774 LONG-TERM DEBT, less current portion 597,413 726,329 OTHER LIABILITIES 98,075 83,260 DEFERRED INCOME TAXES 98,287 106,010 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, 123,835,495 and 116,551,144 shares issued; 123,835,495 and 115,006,751 shares outstanding at August 27, 2005 and February 26, 2005, respectively 1,238 1,166 Additional paid-in capital 390,557 278,204 Accumulated other comprehensive loss (46,842) (43,227) Retained earnings 509,204 455,537 854,157 691,680 Less cost of 1,544,393 shares in treasury at February 26, 2005 - (35,912) 854,157 655,768 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,916,992 $1,855,141 GTECH HOLDINGS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended August 27, August 28, 2005 2004 (Dollars in thousands) OPERATING ACTIVITIES Net income $103,796 $106,696 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 83,523 68,504 Intangibles amortization 5,316 4,170 Deferred income taxes 7,000 13,904 Tax benefit related to stock award plans 6,827 6,615 Minority interest 1,264 1,518 Equity in earnings of unconsolidated affiliates, net of dividends received 205 908 Gain on sale of investments (584) (10,924) Other 11,381 13,300 Changes in operating assets and liabilities: Trade accounts receivable 18,626 (18,552) Inventories (2,991) (5,255) Accounts payable (35,900) (9,111) Employee compensation 4,234 (15,996) Advance payments from customers 1,015 (5,904) Deferred revenue and advance billings (2,822) 17,700 Income taxes payable 21,009 15,664 Other assets and liabilities (6,669) (11,480) NET CASH PROVIDED BY OPERATING ACTIVITIES 215,230 171,757 INVESTING ACTIVITIES Acquisitions (net of cash acquired) (30) (192,402) Purchases of systems, equipment and other assets relating to contracts (59,934) (113,011) Purchases of available-for-sale investment securities (121,675) (50,150) Maturities and sales of available- for-sale investment securities 82,325 272,000 Purchases of property, plant and equipment (5,198) (6,359) License fee (1,750) - Investments in and advances to unconsolidated subsidiaries (1,000) (1,435) (Increase) decrease in restricted cash 5,080 (5,112) Proceeds from sale of investment 3,000 11,773 NET CASH USED FOR INVESTING ACTIVITIES (99,182) (84,696) FINANCING ACTIVITIES Net proceeds from issuance of long- term debt - 15,000 Principal payments on long-term debt (1,358) (92,249) Purchases of treasury stock (32,051) (82,808) Dividends paid (20,287) (20,135) Premiums and fees paid in connection with the early retirement of debt - (10,610) Proceeds from stock options 8,431 4,966 Other 2,623 739 NET CASH USED FOR FINANCING ACTIVITIES (42,642) (185,097) Effect of exchange rate changes on cash (33) (1,036) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 73,373 (99,072) Cash and cash equivalents at beginning of period 94,446 129,339 CASH AND CASH EQUIVALENTS AT END OF PERIOD $167,819 $30,267 DATASOURCE: GTECH Holdings Corporation CONTACT: Robert K. Vincent, Public Affairs, +1-401-392-7452, of GTECH Corporation Web site: http://www.gtech.com/

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