WEST GREENWICH, R.I., April 12 - GTECH Holdings Corporation (NYSE: GTK) today announced fourth quarter and year-end earnings for the fiscal year which ended February 25, 2006.
"GTECH delivered solid financial results in both the quarter and the full fiscal year, meeting or exceeding our previous outlook," said GTECH President and CEO W. Bruce Turner. "In addition, we enjoyed strategic success in each of our verticals by growing our core business, aggressively developing international market opportunities, and leveraging our core competencies into related gaming solutions and transaction-processing business opportunities."
"GTECH delivered another strong year of operating results and substantial free cash flows, resulting in significant value creation for our shareholders and positioning us well for future successes," said GTECH Senior Vice President and CFO Jaymin B. Patel.
Operating Results
Revenues for the fourth quarter of fiscal 2006 were $368.3 million, up 9% over revenues of $337.9 million in the fourth quarter of fiscal 2005. Net income was $59.4 million, or $0.45 per diluted share, compared to net income of $43.8 million, or $0.34 per diluted share for the same period last year. For the quarter, service revenues were up 11.3%, reflecting continued strength in same store sales, strong jackpot activity, and higher revenues from Brazil. Product sales were $74.3 million, comparable to the fourth quarter of fiscal 2005. Service margins increased approximately 150 basis points, to 39.1%, driven by the strength in service revenues, partially offset by higher depreciation and amortization expenses. Product margins increased significantly, from 26.6% in the fourth quarter of fiscal 2005 to 45.6% in the most recent quarter, reflecting a change in product mix. The fourth quarter results include one-time costs of $6.1 million associated with the pending transaction with Lottomatica S.p.A. Excluding transaction-related costs, the Company would have reported net income of $65.5 million and fully diluted earnings per share of $0.50.
Revenues for fiscal 2006 were $1.3 billion, up 3.8% over revenues of $1.26 billion in fiscal 2005. Net income was $211.0 million, or $1.63 per diluted share, compared to net income of $196.4 million, or $1.50 per diluted share, for the same period last year. Net income in fiscal 2005 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. Net income in fiscal 2006 includes one-time costs of $8.0 million associated with the pending Lottomatica transaction, or $0.06 per diluted share.
Prior year earnings and dividends per share reflect the 2-for-1 common stock split declared in June 2004.
Cash Flow and Investments
During fiscal 2006, the Company generated $429.6 million of cash from operations. This cash was principally used to fund $137.3 million of systems, equipment, and other assets relating to contracts; to purchase an additional 11.681% of POLCARD S.A. for $21.5 million; to repurchase $32.1 million, or 1,326,100 shares of the Company's common stock; and to pay cash dividends of $41.7 million. At February 25, 2006, the Company had $495.9 million of cash balances and short-term investment securities on hand.
At the end of fiscal 2006, the Company had $494 million available under its senior revolving credit facility.
Business Highlights
During fiscal 2006, GTECH continued to successfully execute against the Company's strategic objectives of maintaining and expanding the core lottery business, and winning new customers.
Domestically, GTECH signed a seven-year integrated services agreement with the North Carolina Education Lottery (NCEL) for a complete end-to-end online/instant ticket lottery solution. The Company implemented the NCEL in 58 days with approximately 5,000 terminals at startup, making it the fastest instant ticket launch in lottery history.
In addition, GTECH was awarded multi-year online lottery contracts in Washington State and Arizona, and signed an agreement for additional lottery products in California. The Company was also selected as the preferred vendor for new gaming central control systems in Pennsylvania and Louisiana.
In New Jersey, GTECH was selected for a new integrated online/instant lottery system, terminals, and communications network. The award of the New Jersey contract to GTECH is currently being contested by another vendor.
Internationally, GTECH signed a number of contracts including an agreement to provide a new gaming system and terminals for New Zealand Lotteries Commission, and a five-year agreement to provide equipment and services for the national online lottery in Thailand, through its joint venture LOXLEY GTECH Technology Co. Ltd. The Company also began deploying 2,000 WinWave(TM) video lottery terminals (VLTs) to Svenska Spel in Sweden. In conjunction with the VLTs, Svenska Spel is also utilizing GTECH's Enterprise Series(TM) Video central system, which includes functionality designed to allow lotteries unprecedented flexibility to change denomination and download games remotely.
"All told, GTECH secured new contracts and extensions with 22 customers in fiscal 2006, representing approximately $1 billion in revenues to GTECH over the life of the contracts," continued Mr. Turner. "These wins are a clear validation of GTECH's business strategy, our technology, and above all, our understanding of what lotteries, retailers, and players are looking for today and in the future."
Also during the fiscal year, California joined the Mega Millions multi-state game in an effort to boost lottery ticket sales. California expects Mega Millions to generate approximately $200 million to $300 million in net annual incremental total sales for the Lottery, equating to $2.5 million to $4.0 million in annual incremental revenue to GTECH.
Overseas, the multi-jurisdictional game EuroMillions continues to perform well. For calendar year 2005, per capita sales averaged $0.40 per week. On a year-to-date basis, calendar year 2006 weekly per capita sales more than doubled, due in part to a record-breaking jackpot in February.
"EuroMillions has become a solid contributor for GTECH. It continues to grow, with 10 jurisdictions now participating in the game, three of which are GTECH facilities management customers," said Mr. Turner. "In fact, EuroMillions now has the largest player base of any multi-jurisdictional game in the world, with more than 200 million players."
GTECH also deployed 35 new/modified games in more than 20 jurisdictions worldwide. Pick 'n Play(TM), the Company's new game concept designed to combine the appeal of instant gratification and multiple chances to win with the security and integrity of an online game, was recently launched in Illinois. Several other lotteries around the world are currently considering Pick 'n Play as a new revenue source and complementary product line to add to their existing game portfolios.
"We're excited about the evolution of our game content, and Pick 'n Play is just one example of how fresh games can keep lottery play fun and exciting and stimulate incremental sales," concluded Mr. Turner.
Other Business Developments
On January 10, 2006, the Company entered into an agreement with Lottomatica S.p.A, an Italian corporation and the exclusive license holder and operator of Italy's Lotto, and De Agostini S.p.A., a privately held Italian diversified industrial and financial holding group that is Lottomatica's majority shareholder, pursuant to which Lottomatica will acquire GTECH for $35.00 in cash per outstanding GTECH share.
The all cash transaction, which is subject to financing as well as regulatory, customer, and shareholder approvals, is expected to close in mid- 2006. The total enterprise value of the transaction is approximately $4.8 billion.
Fiscal 2006 Fourth Quarter and Full Year Financial Slides
For additional information on GTECH's fourth quarter and year-end results, please visit the Investors section of http://www.gtech.com.
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 $1.3 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
Consolidated financial statements to follow:
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
Fourth Quarter
Fiscal Year Ended
February 25, February 26,
2006 2005
(Dollars in thousands,
except per share amounts)
Revenues:
Services $294,074 $264,298
Sales of products 74,253 73,570
368,327 337,868
Costs and expenses:
Costs of services 179,003 164,897
Costs of sales 40,359 53,996
219,362 218,893
Gross profit 148,965 118,975
Selling, general and administrative 40,107 29,989
Research and development 14,242 13,818
Operating expenses 54,349 43,807
Operating income 94,616 75,168
Other income (expense):
Interest income 3,926 1,657
Equity in earnings (loss) of
unconsolidated affiliates (1,194) 403
Other expense (891) (1,175)
Interest expense (7,631) (7,470)
(5,790) (6,585)
Income before income taxes 88,826 68,583
Income taxes 29,410 24,740
Net income $59,416 $43,843
Basic earnings per share $0.47 $0.38
Diluted earnings per share $0.45 $0.34
Weighted average shares outstanding --
basic 126,708 115,555
Weighted average shares outstanding --
diluted 130,772 131,075
Dividends per share -- common stock $0.085 $0.085
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
Fiscal Year Ended
February 25, February 26, February 28,
2006 2005 2004
(Dollars in thousands,
except per share amounts)
Revenues:
Services $1,122,668 $1,017,683 $957,471
Sales of products 182,138 239,552 93,859
1,304,806 1,257,235 1,051,330
Costs and expenses:
Costs of services 674,528 616,633 537,839
Costs of sales 104,037 157,974 59,226
778,565 774,607 597,065
Gross profit 526,241 482,628 454,265
Selling, general and administrative 135,715 117,253 109,092
Research and development 49,869 52,559 57,318
Operating expenses 185,584 169,812 166,410
Operating income 340,657 312,816 287,855
Other income (expense):
Interest income 10,912 4,615 5,733
Equity in earnings of unconsolidated
affiliates 1,941 2,812 6,236
Other income (expense) (4,341) 5,356 1,889
Interest expense (30,793) (19,213) (10,919)
(22,281) (6,430) 2,939
Income before income taxes 318,376 306,386 290,794
Income taxes 107,331 109,992 107,594
Net income $211,045 $196,394 $183,200
Basic earnings per share $1.73 $1.68 $1.57
Diluted earnings per share $1.63 $1.50 $1.40
Weighted average shares
outstanding -- basic 121,884 116,739 116,464
Weighted average shares
outstanding -- diluted 130,385 132,559 132,625
Cash dividends declared per common
share $0.34 $0.34 $0.255
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
February 25, February 26,
2006 2005
ASSETS (Dollars in thousands)
CURRENT ASSETS:
Cash and cash equivalents $235,191 $94,446
Investment securities available-for-sale 260,725 196,825
Trade and other receivables, net 183,561 172,167
Refundable performance deposit 8,000 8,000
Inventories 88,024 61,135
Deferred income taxes 26,398 31,435
Other current assets 47,819 26,646
TOTAL CURRENT ASSETS 849,718 590,654
SYSTEMS, EQUIPMENT AND OTHER ASSETS
RELATING TO CONTRACTS, net 692,545 720,438
GOODWILL 346,096 331,022
PROPERTY, PLANT AND EQUIPMENT, net 101,416 74,558
INTANGIBLE ASSETS, net 64,212 70,839
OTHER ASSETS 45,915 67,630
TOTAL ASSETS $2,099,902 $1,855,141
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $93,205 $99,234
Accrued expenses 46,220 54,227
Employee compensation 31,804 21,862
Advance payments from customers 63,768 42,865
Deferred revenue and advance billings 17,889 29,705
Income taxes payable 67,098 16,499
Taxes other than income taxes 17,106 16,572
Short-term borrowings - 334
Current portion of long-term debt 9,148 2,476
TOTAL CURRENT LIABILITIES 346,238 283,774
LONG-TERM DEBT, less current portion 542,259 726,329
OTHER LIABILITIES 106,671 83,260
DEFERRED INCOME TAXES 99,362 106,010
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,
127,179,225 and 116,551,144 shares
issued; 127,179,225 and 115,006,751 shares
outstanding at February 25, 2006 and
February 26, 2005, respectively 1,272 1,166
Additional paid-in capital 444,810 278,204
Accumulated other comprehensive loss (35,662) (43,227)
Retained earnings 594,952 455,537
1,005,372 691,680
Less cost of 1,544,393 shares in
treasury at February 26, 2005 - (35,912)
1,005,372 655,768
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $2,099,902 $1,855,141
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year Ended
February 25, February 26, February 28,
2006 2005 2004
(Dollars in thousands)
OPERATING ACTIVITIES
Net income $211,045 $196,394 $183,200
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation 166,768 145,999 115,324
Intangibles amortization 10,582 12,616 3,735
Other amortization 154 - -
Deferred income taxes 11,309 34,740 59,457
Tax benefit related to stock
award plans 6,670 11,254 10,432
Minority interest 1,673 3,799 4,502
Equity in earnings of unconsolidated
affiliates, net of dividends
received 582 3,461 1,672
Gain on sale of investments (751) (10,924) -
Non-cash gain from consolidation of
West Greenwich Technology
Associates, L.P. - - (5,292)
Other 26,991 16,438 10,726
Changes in operating assets and
liabilities:
Trade and other receivables, net (17,420) (42,745) 9,634
Inventories (27,003) 28,522 3,030
Other current assets (14,029) 1,654 (4,913)
Accounts payable (4,854) 14,248 2,186
Employee compensation 8,295 (15,118) (4,231)
Advance payments from customers 20,903 (33,994) 51,601
Deferred revenue and advance
billings (11,816) 15,037 (2,979)
Income taxes payable 54,675 11,484 (27,649)
Other assets and liabilities (14,150) (17,656) 4,632
NET CASH PROVIDED BY OPERATING
ACTIVITIES 429,624 375,209 415,067
INVESTING ACTIVITIES
Acquisitions (net of cash acquired) (23,084) (200,730) (74,442)
Purchases of systems, equipment and
other assets relating to contracts (137,316) (245,592) (268,010)
Purchases of available-for-sale
investment securities (147,275) (246,975) (242,050)
Maturities and sales of
available-for-sale investment
securities 83,375 272,000 20,200
Purchases of property, plant and
equipment (9,656) (12,875) (12,772)
License fees (1,750) - (12,500)
Investments in and advances to
unconsolidated subsidiaries (1,488) (2,071) (2,885)
Refundable performance deposit 8,000 - (20,000)
(Increase) decrease in restricted
cash 5,080 (5,112) -
Proceeds from sale of investments 3,000 11,773 -
NET CASH USED FOR INVESTING
ACTIVITIES (221,114) (429,582) (612,459)
FINANCING ACTIVITIES
Net proceeds from issuance of
long-term debt - 343,254 252,588
Principal payments on long-term debt (2,302) (167,692) (33,293)
Purchases of treasury stock (32,051) (120,658) -
Dividends paid (41,672) (39,830) (29,977)
Premiums and fees paid in connection
with the early retirement of debt - (10,610) (731)
Proceeds from stock options 9,473 13,546 23,943
Other (4,439) (505) (6,324)
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES (70,991) 17,505 206,206
Effect of exchange rate changes on
cash 3,226 1,975 4,351
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 140,745 (34,893) 13,165
Cash and cash equivalents at
beginning of year 94,446 129,339 116,174
CASH AND CASH EQUIVALENTS AT END OF
YEAR $235,191 $94,446 $129,339
