GTK Gtech

WEST GREENWICH, R.I., Dec. 16 /PRNewswire-FirstCall/ -- GTECH Holdings Corporation (NYSE:GTK) today announced third quarter earnings for fiscal year 2006, which ended November 26, 2005. "We are pleased with GTECH's performance in the third quarter and we remain on track to meet our financial objectives for the full fiscal year," said GTECH President and CEO W. Bruce Turner. "Our financial results were at the high end of our targeted expectations. We won several key new contracts, new game content is driving new revenues, and we continue to make progress in our Gaming Solutions strategy." "We believe the contributions from new contracts won over the past 12 to 18 months, combined with the impact of our acquisitions, will help drive our continued success, and we remain excited about the long-term growth prospects of the business," said GTECH Senior Vice President and CFO Jaymin B. Patel. Operating Results Revenues for the third quarter of fiscal 2006 were $300.1 million, down 4.9% from revenues of $315.6 million in the third quarter of fiscal 2005. Net income was $47.8 million, or $0.37 per diluted share, compared to net income of $45.9 million, or $0.35 per diluted share for the same period last year. Revenues for the first nine months of fiscal 2006 were $936.5 million, up 1.9% over revenues of $919.4 million in the first nine months of fiscal 2005. Net income was $151.6 million, or $1.17 per diluted share, compared to net income of $152.6 million, or $1.16 per diluted share for the same period last year. Net income in the first nine months of the prior year includes a one- time, after-tax gain of $7.0 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 nine months of fiscal 2006, the Company generated $308.5 million of cash from operations. This cash was principally used to fund $92.4 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 $30.9 million. At November 26, 2005, the Company had $167.6 million of cash and cash equivalents and $261.3 million of short- term investment securities on hand. At the end of the third quarter of fiscal 2006, the Company had $493 million available under its senior revolving credit facility. Financial Outlook The Company provided guidance for the fourth quarter and full year of fiscal 2006. For the fourth quarter of fiscal 2006, the Company expects service revenue growth in the range of 5% to 7% and product sales in the range of $85 million to $95 million. The Company expects service margins in the range of 39% to 41% and product sale margins in the range of 41% to 43%. Accordingly, the Company expects diluted earnings per share to be in the range of $0.45 to $0.48 per share for the quarter. For the fiscal year ending February 25, 2006, the Company expects service revenue growth in the range of 9% to 10% and product sales in the range of $190 million to $200 million. The Company expects service margins to be in the range of 40% to 41%, and product sale margins to be in the range of 40% to 42%. Based upon this outlook, the Company now expects earnings per share for fiscal 2006 to be in the range of $1.63 to $1.66 on a fully-diluted basis. Third Quarter Highlights In the third quarter, GTECH continued to execute against its growth strategy. The Company defended its core lottery business by receiving contract awards from customers in New Jersey and Arizona, following competitive procurements. In California, GTECH received an order for a variety of lottery products including additional Altura(R) terminals, Instant Ticket Vending Machines (ITVMs), and other self-service lottery solutions. Additionally, the Company signed a five-year contract extension with Supreme Ventures Limited to continue providing online lottery products and services in Jamaica through January 11, 2016. Also in the quarter, GTECH introduced its "Dynamic Floor Management" system at the Global Gaming Expo (G2E) in Las Vegas, Nevada. The system will give casino operators the flexibility to select the game, denomination, and mode of play for a single machine or a group of machines, thus allowing casinos to better serve their customers' needs based on the time of day or the type of players they are expecting. Moreover, the Company recently entered into an agreement with a leading gaming company, Aristocrat Technologies, to distribute some of its most popular products in Rhode Island. In the quarter, GTECH installed approximately 280 Aristocrat machines at Lincoln Park in Rhode Island, which are performing at more than 115% efficiency. This Aristocrat-supported installation augments product placements from Spielo and Atronic International (existing GTECH subsidiary and partner, respectively), under GTECH's 20-year master contract with the State of Rhode Island. The Company also announced a partnership with Dresser Wayne for GTECH's Lottery Inside solution. This will integrate lottery ticket sales with Dresser Wayne's Nucleus(R), the leading petroleum retail point-of-sale platform. Lotteries in New York, California, and Georgia launched GTECH's "KING KONG"-themed games. The New York Lottery introduced its "KING KONG" Millions online game in early November. By the time the game concluded on December 5, sales had exceeded $20 million. The California and Georgia lotteries joined New York by offering "KING KONG" themed instant-ticket offerings with multiple price points. The Company further strengthened its senior management team by appointing Atul Bali Vice President of Corporate Development and Strategic Planning, reporting directly to Mr. Patel. In addition, GTECH was named Corporation of the Year by the Florida Department of Management Services, Office of Supplier Diversity, for its subcontracting of minority- and women-owned businesses in support of the Florida Lottery's operations. 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/. * "KING KONG" is copyrighted by Universal Studios and licensed to GTECH Corporation by Universal Studios Licensing LLLP. All Rights Reserved. Contact: Robert K. Vincent Public Affairs GTECH Corporation 401-392-7452 Consolidated financial statements to follow: GTECH HOLDINGS CORPORATION AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS (Unaudited) Three Months Ended November 26, November 27, 2005 2004 (Dollars in thousands, except per share amounts) Revenues: Services $270,889 $251,945 Sales of products 29,249 63,702 300,138 315,647 Costs and expenses: Costs of services 164,984 155,962 Costs of sales 17,330 44,187 182,314 200,149 Gross profit 117,824 115,498 Selling, general and administrative 33,751 29,740 Research and development 11,446 13,007 Operating expenses 45,197 42,747 Operating income 72,627 72,751 Other income (expense): Interest income 2,836 642 Equity in earnings of unconsolidated affiliates 817 810 Other expense (1,018) (2,070) Interest expense (7,892) (3,688) (5,257) (4,306) Income before income taxes 67,370 68,445 Income taxes 19,537 22,590 Net income $47,833 $45,855 Basic earnings per share $0.38 $0.40 Diluted earnings per share $0.37 $0.35 Weighted average shares outstanding - basic 125,333 115,708 Weighted average shares outstanding - diluted 130,875 131,435 Cash dividends declared per common share $0.085 $0.085 GTECH HOLDINGS CORPORATION AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS (Unaudited) Nine Months Ended November 26, November 27, 2005 2004 (Dollars in thousands, except per share amounts) Revenues: Services $828,594 $753,385 Sales of products 107,885 165,982 936,479 919,367 Costs and expenses: Costs of services 495,525 451,736 Costs of sales 63,678 103,978 559,203 555,714 Gross profit 377,276 363,653 Selling, general and administrative 95,608 87,264 Research and development 35,627 38,741 Operating expenses 131,235 126,005 Operating income 246,041 237,648 Other income (expense): Interest income 6,986 2,958 Equity in earnings of unconsolidated affiliates 3,135 2,409 Other income (expense) (3,450) 6,531 Interest expense (23,162) (11,743) (16,491) 155 Income before income taxes 229,550 237,803 Income taxes 77,921 85,252 Net income $151,629 $152,551 Basic earnings per share $1.26 $1.30 Diluted earnings per share $1.17 $1.16 Weighted average shares outstanding - basic 120,277 117,133 Weighted average shares outstanding - diluted 130,257 133,050 Cash dividends declared per common share $0.255 $0.255 GTECH HOLDINGS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) November 26, February 26, 2005 2005 ASSETS (Dollars in thousands) CURRENT ASSETS: Cash and cash equivalents $167,587 $94,446 Investment securities available-for-sale 261,275 196,825 Trade accounts receivable, net 159,324 168,706 Sales-type lease receivables 3,138 3,461 Refundable performance deposit 8,000 8,000 Inventories 86,958 61,135 Deferred income taxes 24,416 31,435 Other current assets 32,902 26,646 TOTAL CURRENT ASSETS 743,600 590,654 SYSTEMS, EQUIPMENT AND OTHER ASSETS RELATING TO CONTRACTS, net 685,832 720,438 GOODWILL, net 345,809 331,022 PROPERTY, PLANT AND EQUIPMENT, net 94,454 74,558 INTANGIBLE ASSETS, net 68,645 70,839 REFUNDABLE PERFORMANCE DEPOSIT 12,000 12,000 SALES-TYPE LEASE RECEIVABLES 2,722 4,756 OTHER ASSETS 41,870 50,874 TOTAL ASSETS $1,994,932 $1,855,141 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $58,802 $99,234 Accrued expenses 56,516 54,227 Employee compensation 33,383 21,862 Advance payments from customers 55,493 42,865 Deferred revenue and advance billings 40,377 29,705 Income taxes payable 45,966 16,499 Taxes other than income taxes 17,867 16,572 Short term borrowings - 334 Current portion of long-term debt 2,518 2,476 TOTAL CURRENT LIABILITIES 310,922 283,774 LONG-TERM DEBT, less current portion 561,850 726,329 OTHER LIABILITIES 99,946 83,260 DEFERRED INCOME TAXES 92,034 106,010 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, 126,366,782 and 116,551,144 shares issued; 126,366,782 and 115,006,751 shares outstanding at November 26, 2005 and February 26, 2005, respectively 1,264 1,166 Additional paid-in capital 427,528 278,204 Accumulated other comprehensive loss (44,950) (43,227) Retained earnings 546,338 455,537 930,180 691,680 Less cost of 1,544,393 shares in treasury at February 26, 2005 - (35,912) 930,180 655,768 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,994,932 $1,855,141 GTECH HOLDINGS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended November 26, November 27, 2005 2004 (Dollars in thousands) OPERATING ACTIVITIES Net income $151,629 $152,551 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 125,081 105,645 Intangibles amortization 7,945 9,127 Deferred income taxes 4,407 28,213 Tax benefit related to stock award plans 7,110 10,889 Minority interest 2,287 2,178 Equity in earnings of unconsolidated affiliates, net of dividends received (612) 1,071 Gain on sale of investments (751) (10,924) Other 16,718 12,695 Changes in operating assets and liabilities: Trade accounts receivable 2,532 (27,832) Inventories (25,884) 4,207 Accounts payable (35,873) (8,695) Employee compensation 10,083 (10,433) Advance payments from customers 12,628 (13,762) Deferred revenue and advance billings 10,672 15,158 Income taxes payable 29,456 14,232 Other assets and liabilities (8,906) (5,844) NET CASH PROVIDED BY OPERATING ACTIVITIES 308,522 278,476 INVESTING ACTIVITIES Acquisitions (net of cash acquired) (21,869) (200,764) Purchases of systems, equipment and other assets relating to contracts (92,382) (189,374) Purchases of available-for-sale investment securities (147,275) (50,150) Maturities and sales of available- for-sale investment securities 82,825 272,000 Purchases of property, plant and equipment (6,712) (9,134) License fee (1,750) - Investments in and advances to unconsolidated subsidiaries (1,488) (2,503) (Increase) decrease in restricted cash 5,080 (5,138) Proceeds from sale of investment 3,000 11,773 NET CASH USED FOR INVESTING ACTIVITIES (180,571) (173,290) FINANCING ACTIVITIES Net proceeds from issuance of long-term debt - 343,254 Principal payments on long-term debt (2,259) (142,657) Purchases of treasury stock (32,051) (100,536) Dividends paid (30,921) (29,988) Premiums and fees paid in connection with the early retirement of debt - (10,610) Proceeds from stock options 9,406 11,810 Other 594 2,339 NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (55,231) 73,612 Effect of exchange rate changes on cash 421 1,464 INCREASE IN CASH AND CASH EQUIVALENTS 73,141 180,262 Cash and cash equivalents at beginning of period 94,446 129,339 CASH AND CASH EQUIVALENTS AT END OF PERIOD $167,587 $309,601 DATASOURCE: GTECH Holdings Corporation CONTACT: Robert K. Vincent, Public Affairs of GTECH Corporation, +1-401- 392-7452 Web site: http://www.gtech.com/

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