Gtech (NYSE:GTK)
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GTECH Announces Strong Third Quarter Results
Company Indicates Fiscal Year 2005 Outlook Remains on Track; Offers Preliminary
Guidance for Fiscal Year 2006
WEST GREENWICH, R.I., Dec. 21 /PRNewswire-FirstCall/ -- GTECH Holdings
Corporation (NYSE:GTK) today announced third quarter earnings for fiscal year
2005 ended November 27, 2004.
"GTECH enjoyed a solid and productive third quarter. We met both our revenue
and earnings targets, and we made significant progress towards ensuring our
continued long-term growth," said GTECH President and CEO W. Bruce Turner.
"Our business was strong, leading to a number of key wins around the world. On
the operational side, we continued to improve the efficiency of our business,
and we furthered our strategic progress in both Commercial Services and Gaming
Solutions with the announcements of two solid acquisitions."
"We are pleased with the continued strength of our business and excited about
the future," said GTECH Senior Vice President and CFO Jaymin B. Patel. "At this
stage of the planning process, we are comfortable that the outlook for fiscal
2006 is shaping up well, giving us confidence that we remain on track in terms
of achieving our long-term goals for growth, profitability, and value creation
for our shareholders."
Operating Results
Earnings and dividends per share for the three and nine 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 third quarter of fiscal 2005 were $315.6 million, up 23.8%
over revenues of $254.9 million in the third quarter of fiscal 2004. Net income
was $45.9 million, or $0.35 per diluted share, comparable to the same period
last year.
Revenues for the first nine months of fiscal 2005 were $919.4 million, up 19.1%
over revenues of $771.8 million in the first nine months of fiscal 2004. Net
income was $152.6 million, or $1.16 per diluted share, up 12.7% over net income
of $135.4 million, or $1.06 per diluted share, for the same period last year.
Net income in the first nine months of fiscal 2005 includes a net, one- time,
after-tax gain of $6.5 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. Net income in the
first nine months of fiscal 2004 includes a one-time, after- tax gain of $3.3
million, or approximately $0.03 per diluted share, from the consolidation of
the partnership that owns the Company's corporate headquarters in West
Greenwich, Rhode Island.
Cash Flow and Investments
During the first nine months of fiscal 2005, the Company generated $278.5
million of cash from operations. This cash, along with cash generated by the
sale of available-for-sale investment securities, was principally used to fund
the Spielo Manufacturing Incorporated, Leeward Islands Lottery Holding Company,
Inc., and BillBird S.A. acquisitions of $200.8 million and to fund $189.4
million of systems, equipment, and other assets relating to contracts. In
addition, the Company issued $300 million of Senior Notes during the third
quarter of fiscal 2005; repaid the remaining $90.0 million of the Company's
7.87% Senior Notes; repurchased $100.5 million, or 4,409,500 shares of the
Company's common stock; and paid cash dividends of $30.0 million. At November
27, 2004, the Company had $309.6 million of cash and cash equivalents on hand,
which includes the net proceeds from the issuance of $300 million of Senior
Notes.
During the fiscal 2005 third quarter, GTECH entered into a new $500 million
senior revolving credit facility. The new credit facility is unsecured and
matures in October 2009. At the end of the current fiscal quarter, GTECH had no
borrowings under the credit facility.
Financial Outlook
The Company also updated the guidance for fiscal year ending February 26, 2005.
The Company continues to expect total revenue growth of approximately 19%, with
service revenue growth in the range of 6% to 7%. The Company expects product
sales to be in the range of $240 million to $250 million.
The Company expects service margins to be approximately 40% and product margins
in the range of 34% to 36%.
Based on the current operational outlook, GTECH now expects earnings per share
for fiscal year 2005 to be in the range of $1.46 to $1.48 on a fully- diluted
basis, rather than the previously announced $1.43 to $1.48 per share.
Earnings per diluted share for the fourth quarter are expected to be in the
range of $0.31 to $0.33.
For fiscal year 2006, ending February 25, 2006, the Company expects service
revenue growth in the range of 7% to 9%, reflecting a 5% to 6% increase in same
store sales, the net effect of contract wins and the impact of acquisitions,
offset by a number of factors, including contractual rate changes.
The Company expects product sales in the range of $215 million to $235 million.
The Company expects service margins of approximately 40% and product margins in
the range of 37% to 39%.
Based upon the preliminary outlook, the Company believes that earnings per
share will be in the range of $1.53 to $1.58 for fiscal year 2006.
Third Quarter Highlights
In the third quarter of fiscal year 2005, GTECH continued to successfully
execute against the Company's strategic objectives of maintaining and expanding
the core lottery business, winning new customers, and growing perimeter
businesses.
Domestically, GTECH signed a three-year contract extension with the Minnesota
State Lottery commencing in February 2008. The Colorado Lottery granted GTECH
a 90-day extension, which commenced November 1, 2004, in order to provide the
new vendor additional time to convert the system. Lotteries in Arizona and New
Mexico also extended GTECH's Instant Ticket Vending Machine (ITVM) contracts
for three and two years, respectively.
Outside of the U.S., GTECH signed a new six-year integrated services contract
in Mexico with Pronosticos para la Asistencia Publica. In addition, GTECH's
joint venture in Thailand, LOXLEY GTECH Technology Co. Ltd., was named the
preferred bidder for a national online lottery. In Finland, GTECH's lottery
customer, Veikkaus Oy, selected the Company to provide a new interactive
software solution, central system, and terminals. Societe de la Loterie de la
Suisse Romande chose GTECH for a new integrated online and instant ticket
system, as well as new terminals and a wireless communications network. GTECH
was also selected by Atlantic Lottery Corporation for a new video lottery
central system and ongoing services.
Singapore Pools PTY Ltd. signed a five-year contract with GTECH for ES
Connect(TM), which will enable the existing lottery system to support internet
protocol (IP) networks and IP lottery terminals. In addition, GTECH will
provide Singapore Pools with ES Connect(TM) B2B, providing an interface for
third-party systems.
"Our successes throughout this year, combined with our ongoing commitment to
improving efficiencies, our increased financial flexibility, and the prudent
investment of shareholder capital have positioned us for continued success in
fiscal 2006," said Mr. Turner.
Also in the quarter, GTECH's majority-owned subsidiary, PolCard, completed the
acquisition of privately-held BillBird S.A., the leading provider of electronic
bill payment services in Poland, making GTECH the Commercial Services leader in
Poland.
After the close of the quarter, GTECH announced it was acquiring a 50 percent
controlling equity position in the Atronic group of companies owned by the
Gauselmann Group, based in Germany. Atronic is one of the five largest slot
machine makers globally, and is a market leader in Europe, Russia, and Latin
America, with a solid presence in the United States.
Also after the close of the quarter, GTECH was awarded a seven-year integrated
services contract to supply new equipment and services to the Missouri Lottery,
and signed an agreement with its customer in Germany,
Lotterie-Treuhandgesellschaft mbH Thuringen, for a new central system and
terminals.
Earlier today, GTECH announced it was selected by the Multi-State Lottery
Association (MUSL) to supply equipment, software, services, and communications
network for the first ever multi-vendor, multi-state video lottery Wide Area
Progressive (WAP) solution.
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 5,400 people in over 50 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/.
Consolidated financial statements to follow:
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
Three Months Ended
November 27, November 22,
2004 2003
(Dollars in thousands,
except per share amounts)
Revenues:
Services $251,945 $231,225
Sales of products 63,702 23,697
315,647 254,922
Costs and expenses:
Costs of services 155,962 131,991
Costs of sales 44,187 13,094
200,149 145,085
Gross profit 115,498 109,837
Selling, general and administrative 29,740 28,167
Research and development 13,007 12,926
Operating expenses 42,747 41,093
Operating income 72,751 68,744
Other income (expense):
Interest income 642 1,494
Equity in earnings of unconsolidated
affiliates 810 1,500
Other income (expense) (2,070) 4,052
Interest expense (3,688) (2,986)
(4,306) 4,060
Income before income taxes 68,445 72,804
Income taxes 22,590 26,937
Net income $45,855 $45,867
Basic earnings per share $0.40 $0.39
Diluted earnings per share $0.35 $0.35
Weighted average shares outstanding -
basic 115,708 117,640
Weighted average shares outstanding -
diluted 131,435 133,853
Dividends per share - common stock $0.085 $0.085
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
Nine Months Ended
November 27, November 22,
2004 2003
(Dollars in thousands,
except per share amounts)
Revenues:
Services $753,385 $692,782
Sales of products 165,982 78,972
919,367 771,754
Costs and expenses:
Costs of services 451,736 391,593
Costs of sales 103,978 50,533
555,714 442,126
Gross profit 363,653 329,628
Selling, general and administrative 87,264 79,498
Research and development 38,741 41,422
Operating expenses 126,005 120,920
Operating income 237,648 208,708
Other income (expense):
Interest income 2,958 3,703
Equity in earnings of unconsolidated
affiliates 2,409 6,120
Other income 6,531 3,337
Interest expense (11,743) (6,997)
155 6,163
Income before income taxes 237,803 214,871
Income taxes 85,252 79,502
Net income $152,551 $135,369
Basic earnings per share $1.30 $1.17
Diluted earnings per share $1.16 $1.06
Weighted average shares outstanding -
basic 117,133 115,764
Weighted average shares outstanding -
diluted 133,050 128,712
Dividends per share - common stock $0.255 $0.17
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
November 27, February 28,
2004 2004
ASSETS (Dollars in thousands)
CURRENT ASSETS:
Cash and cash equivalents $309,601 $129,339
Investment securities available-for-
sale - 221,850
Trade accounts receivable, net 150,747 118,902
Sales-type lease receivables 8,268 7,705
Inventories 86,345 76,784
Deferred income taxes 25,846 34,396
Other current assets 28,289 24,426
TOTAL CURRENT ASSETS 609,096 613,402
SYSTEMS, EQUIPMENT AND OTHER ASSETS
RELATING TO CONTRACTS, net 697,285 591,362
GOODWILL, net 334,227 188,612
PROPERTY, PLANT AND EQUIPMENT, net 68,281 57,576
INTANGIBLE ASSETS, net 73,187 28,231
REFUNDABLE PERFORMANCE DEPOSIT 20,000 20,000
SALES-TYPE LEASE RECEIVABLES 12,797 17,653
OTHER ASSETS 47,630 42,295
TOTAL ASSETS $1,862,503 $1,559,131
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $82,484 $80,004
Accrued expenses 49,894 47,428
Employee compensation 24,649 33,981
Advance payments from customers 63,097 104,128
Deferred revenue and advance billings 29,759 14,459
Income taxes payable 22,033 12,394
Taxes other than income taxes 20,215 19,459
Short term borrowings 483 -
Current portion of long-term debt 4,199 106,319
TOTAL CURRENT LIABILITIES 296,813 418,172
LONG-TERM DEBT, less current portion 754,888 463,215
OTHER LIABILITIES 79,771 53,736
DEFERRED INCOME TAXES 96,244 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; 115,648,332 and 118,395,168
shares
outstanding at November 27, 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 277,839 266,320
Accumulated other comprehensive loss (48,105) (70,508)
Retained earnings 424,317 839,270
655,217 1,036,005
Less cost of 902,812 and 66,195,640
shares in treasury at
November 27, 2004 and February 28,
2004, respectively (shares adjusted
to
reflect July 2004 two-for-one stock
split and treasury stock retirement) (20,430) (473,716)
634,787 562,289
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,862,503 $1,559,131
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
November 27, November 22,
2004 2003
(Dollars in thousands)
OPERATING ACTIVITIES
Net income $152,551 $135,369
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation 105,645 81,449
Intangibles amortization 9,839 2,662
Deferred income taxes benefit 28,213 -
Tax benefit related to stock award
plans 10,889 11,871
Non-cash gain from consolidation of
West Greenwich Technology Associates, L.P. - (5,292)
Gain on sale of investment (10,924) -
Equity in earnings of unconsolidated
affiliates, net of dividends
received 1,071 (263)
Other 14,161 7,189
Changes in operating assets and liabilities:
Trade accounts receivable (27,832) 2,358
Inventories 4,207 22,879
Accounts payable (8,695) 670
Employee compensation (10,433) (5,923)
Advance payments from customers (13,762) 43,414
Deferred revenue and advance billings 15,158 (7,189)
Income taxes payable 14,232 11,437
Other assets and liabilities (5,844) 9,305
NET CASH PROVIDED BY OPERATING
ACTIVITIES 278,476 309,936
INVESTING ACTIVITIES
Acquisitions (net of cash acquired) (200,764) (74,174)
Purchases of systems, equipment and
other assets relating to contracts (189,374) (211,867)
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 (9,134) (8,506)
Increase in restricted cash (5,138) -
Investments in and advances to
unconsolidated subsidiaries (2,503) (1,185)
Refundable performance deposit - (20,000)
License fee - (12,500)
NET CASH USED FOR INVESTING
ACTIVITIES (173,290) (328,232)
FINANCING ACTIVITIES
Net proceeds from issuance of long-
term debt 343,254 251,138
Principal payments on long-term debt (142,657) (31,688)
Purchases of treasury stock (100,536) -
Dividends paid (29,988) (19,928)
Redemption premium paid in connection
with the early retirement of debt (10,610) -
Proceeds from stock options 11,810 22,068
Other 2,339 (2,194)
NET CASH PROVIDED BY FINANCING
ACTIVITIES 73,612 219,396
Effect of exchange rate changes on
cash 1,464 3,262
INCREASE IN CASH AND CASH EQUIVALENTS 180,262 204,362
Cash and cash equivalents at
beginning of period 129,339 116,174
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $309,601 $320,536
DATASOURCE: GTECH Holdings Corporation
CONTACT: Robert K. Vincent, Public Affairs of GTECH Corporation,
+1-401-392-7452
Web site: http://www.gtech.com/