GTECH Fiscal Year 2004 Revenues Exceed $1 Billion

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

Gtech (NYSE:GTK)
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GTECH Fiscal Year 2004 Revenues Exceed $1 Billion Company Announces Fiscal 2004 Fourth Quarter and Record Year-End Results WEST GREENWICH, R.I., April 15 /PRNewswire-FirstCall/ -- GTECH Holdings Corporation 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. 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/. Contact: Robert K. Vincent Public Affairs GTECH Corporation 401-392-7452 Consolidated statement of operations to follow: 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 Feb. 28, Feb. 22, Feb. 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 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 STATEMENTS OF CASH FLOWS Fiscal Year Ended Feb. 28, Feb. 22, Feb. 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 DATASOURCE: GTECH Corporation CONTACT: Robert K. Vincent, Public Affairs of GTECH Corporation, +1-401-392-7452 Web site: http://www.gtech.com/

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