EX-99 3 exh_99.txt 4TH QUARTER PRESS RELEASE DATED 4/4/02 55 Technology Way West Greenwich, Rhode Island 02817 USA Telephone: 401 392-1000 Fax: 401 392-1234 Website: WWW.GTECH.COM For Immediate Release Contact: Robert K. Vincent April 4, 2002 Public Affairs GTECH Corporation 401-392-7452 GTECH ANNOUNCES FISCAL YEAR 2002 FOURTH QUARTER ----------------------------------------------- AND YEAR-END RESULTS -------------------- GTECH Delivers Strong Overall Results for the Fourth Quarter and Full Year; --------------------------------------------------------------------------- Earnings Per Share Exceed Expectations, Excluding One-Time Expenses; -------------------------------------------------------------------- Company Revises Fiscal Year 2003 Estimates Upward ------------------------------------------------- WEST GREENWICH, RI - (April 4, 2002) - GTECH (NYSE: GTK) today announced earnings for the fourth quarter and fiscal year ended February 23, 2002. "GTECH's performance in both the fourth quarter and the full year exceeded expectations on all fronts," said GTECH CEO and President Howard S. Cohen. "GTECH's underlying business is solid, and we are as confident as ever with our long-term outlook." "We generated $181 million in free cash flow, and we returned all of it, and more, to our shareholders through our share repurchase program. Looking forward, we are confident that the continued strength of our business will drive improved performance in fiscal year 2003 and have increased our earnings expectations accordingly," said Mr. Cohen. "We are pleased with our financial performance in the fourth quarter and fiscal year," said GTECH Senior Vice President and Chief Financial Officer Jaymin B. Patel. "Our efforts to streamline costs, and improve efficiency and productivity over the past twelve months are bearing fruit. As a result, we believe we are well positioned to achieve our number-one goal: growing shareholder value through improved profitability, continued generation of strong cash flows, and delivering returns on capital significantly above our cost of capital," concluded Mr. Patel. Operating Results ----------------- Revenues for the fourth quarter of fiscal 2002 totaled $274.6 million, an increase of 11.7% over the $245.9 million of revenues in the fourth quarter of fiscal 2001. Income before the extraordinary charge associated with the early retirement of debt and the refinancing of the Company's World Headquarters facilities was $18.4 million, or $0.62 per diluted share, compared with $25.9 million, or $0.75 per diluted share, for the same period last year. Excluding the one-time impact of asset write-offs and reserves associated with the economic instability in Argentina, income before the extraordinary charge in the fourth quarter of fiscal 2002 would have been $27.5 million, or $0.93 per diluted share, compared to $0.79 per diluted share reported in the fourth quarter of last year, adjusted for special charges. Net income for the fourth quarter was $10.7 million, or $0.36 per diluted share. Revenues for fiscal 2002 totaled $1.0 billion, an increase of 7.8% over the $936.5 million in fiscal 2001. Income before the extraordinary charge was $75.8 million, or $2.51 per diluted share, compared with $43.1 million, or $1.25 per diluted share, for the same period last year. Excluding the impact of asset write-offs and reserves associated with the economic instability in Argentina, income before the extraordinary charge in fiscal 2002 would have been $84.9 million, or $2.81 per diluted share, compared to $2.08 per diluted share reported last year, adjusted for special and additional charges. Net income for fiscal 2002 was $68.0 million, or $2.26 per diluted share. The results for the prior year included special charges totaling $42.3 million, or $0.74 per diluted share in connection with a Company-wide value assessment of business operations and additional charges of $5.2 million, or $0.09 per diluted share in connection with the implementation of a Restricted Stock Plan. Excluding these charges, diluted earnings per share in fiscal 2001 would have been $0.79 and $2.08 for the fourth quarter and full year, respectively. In the fourth quarter of fiscal 2002, the Company issued, through a private placement, $175 million of 1.75% Convertible Debentures due 2021, and subsequently filed a registration statement to register the resale of the Debentures with the Securities and Exchange Commission. Proceeds from the Debentures were used principally to retire $165 million of seven and 10-year notes with interest rates averaging 7.8%. Tender premiums associated with the retirement of the notes, along with make-whole premiums associated with the refinancing of the Company's World Headquarters facilities, resulted in an extraordinary charge against fourth quarter earnings of $7.8 million (net of income tax benefit) or $0.26 per diluted share. Fourth Quarter -------------- Service revenues were $215.2 million in the fourth quarter, down slightly from the $215.8 million of service revenues in the same quarter last year. Had last year's average exchange rates in the fourth quarter prevailed throughout the most recent quarter, the Company estimates that service revenues would have increased by $6.4 million, or 3%. Product sales were $59.4 million, a $29.3 million increase over the $30.1 million reported in the same quarter last year, primarily driven by the sale of terminals and software to Camelot, in the United Kingdom (U.K.). Service gross margins for the quarter declined to 25.7% from 38.2% in the prior year quarter, primarily due to the write-off of assets and reserves associated with the economic instability in Argentina and impairment charges relating to certain under-performing international assets. The Company has no remaining asset exposure in Argentina. Product margins improved to 29.8% in the fourth quarter of fiscal 2002, compared to 26.4% in the fourth quarter of last year, primarily due to the large volume of terminal and software sales to Camelot. Interest expense declined by $2.0 million, or 31%, in the fourth quarter of fiscal 2002, compared to the fourth quarter of fiscal 2001, primarily due to lower interest rates including those resulting from the debt restructuring. Full Year --------- Service revenues were $831.8 million in fiscal 2002, a decrease of 2.9% compared to service revenues of $856.5 million in fiscal 2001. This decrease reflects a 5.4% decline in international lottery service revenues, partially offset by a 3.4% improvement in domestic lottery service revenues, along with lower service revenues associated with the wind down of the Company's Transactive subsidiary. Had last year's average exchange rates prevailed throughout fiscal 2002, the Company estimates that service revenues would have increased by $10.9 million, or 1.3%. Product sales were $177.9 million in fiscal 2002, an increase of $97.8 million over the $80.1 million in fiscal 2001, primarily driven by the sale of terminals and software to Camelot. Service gross margins declined to 29.5% from 34.1% last year, primarily due to the write-off of assets and reserves associated with the economic instability in Argentina and impairment charges relating to certain under-performing international assets. Product margins improved to 23.3% in fiscal 2002, compared to 6.5% last year, primarily due to the large volume of sales of terminals and software to Camelot. In addition, cost over-runs on system installations in New South Wales and Israel adversely impacted prior year margins. Operating expenses in fiscal 2002 were $152.6 million, a decline of $63.1 million from the $215.7 million incurred in the prior year. This was principally due to the absence of $42.3 million of prior-year special charges and $5.2 million of additional charges, along with $15.6 million of reductions, driven primarily by the continued execution of the value assessment initiatives and increased emphasis on improving productivity and efficiency. Other income declined from $7.2 million in fiscal 2001 to $1.4 million in fiscal 2002, primarily due to the write-off in the second quarter of fiscal 2002 of the Company's $9.3 million cost method investment in the common stock of an Internet security developer, partially offset by a $3.9 million gain on the sale of a majority interest in the Company's subsidiary in the CZECH Republic, which owns certain lottery assets. Interest expense declined by $4.3 million, or 16%, in fiscal 2002 compared to fiscal 2001, primarily due to lower interest rates including those resulting from the debt restructuring. The Company's effective income tax rate declined from 39% in fiscal 2001, to 38% in fiscal 2002, due principally to lower state taxes and a reduction in non-deductible expenses. Cash Flow and Investments ------------------------- During fiscal 2002, the Company generated $345.2 million of cash from operations. This cash, together with existing cash balances, was used principally to fund the purchase of $176.5 million of systems, equipment and other assets relating to contracts and to repurchase $219.3 million of the Company's common stock. As of February 23, 2002, the Company had no borrowings under the $300 million credit facility. Financial Outlook ----------------- The Company provided preliminary guidance for fiscal year ending February 22, 2003, on January 18, 2002. Today, it revised earnings guidance upward for fiscal year 2003. The Company continues to expect year-over-year service revenue growth in the range of 1% to 2%, and product sales in the range of $90 to $110 million. However, based on the benefits of the ongoing operating efficiency programs, coupled with the accelerated ramp-up of new contracts launched in fiscal year 2002, the Company now expects that service gross margins will be in the range of 34% to 35%, with product margins in the range of 20% to 22%. The Company also expects that operating expenses will benefit from the ongoing efforts to streamline costs. Based on this, it now believes that earnings per share for fiscal year 2003 will be in the range of $3.30 to $3.40 on a fully-diluted basis, rather than the previously announced $3.15 to $3.25 per share. For the first quarter of fiscal year 2003, ending May 25, 2002, the Company expects service revenues to be approximately 1% to 2% higher than the first quarter of last year, and product sales to be in the range of $8 to $10 million. The Company expects significant year-over-year improvement at both the cost of service and operating profit levels. Accordingly, the Company expects earnings per share to be in the range of $0.83 to $0.88 per share for the quarter, compared with $0.61 reported in the same period last year. Business Highlights and Strategy -------------------------------- In fiscal year 2002, GTECH continued to expand its business internationally, signing contracts with new lottery customers in Taiwan and Luxembourg, as well as successfully launching new online lotteries in Jamaica and Portugal. Also in the fiscal year, GTECH successfully replaced the U.K. National Lottery's existing terminal base with over 26,000 Isys terminals and converted its online gaming and instant-ticket systems to GTECH's AlphaGOLS system. After the close of the fourth quarter, the Company announced an agreement with Camelot Group plc, operator of the U.K. National Lottery, to develop and license new software applications to Camelot that will allow online, interactive offerings of lottery games over the Internet for players in the U.K. GTECH also signed new contracts with existing customers in the CZECH Republic, Poland, Texas, and Kansas, and entered into extension agreements with customers in the Slovak Republic, Louisiana, Rhode Island, Wisconsin, Kentucky, and New Mexico. In addition, GTECH was awarded a contract to supply a new video lottery central system for its existing customer in Rhode Island, and to negotiate a contract to provide a new video lottery central system for the Canadian Province of Saskatchewan. GTECH further strengthened its senior management team with the appointments of Larry R. Smith as Senior Vice President and Chief Technology Officer and Marc A. Crisafulli as Senior Vice President and General Counsel. In addition, David J. Calabro was appointed Executive Vice President of Global Operations and Antonio Carlos Rocha was appointed Senior Vice President of Marketing and Corporate Development. The Company also appointed The Rt. Hon. Sir Jeremy Hanley KCMG to its Board of Directors. "GTECH won eight new contracts and six extensions to existing contracts in fiscal 2002," said Mr. Cohen. "All told, this represents a value of approximately $1.5 billion, taken over the life of the contracts." "One of the most significant wins of the year was the National Lottery of Taiwan, which has been phenomenally successful since its launch in January," continued Mr. Cohen. "Having generated over $900 million in their first eleven weeks of operations, they are well on their way to exceeding sales targets for their first year." "Another encouraging development has been the continuing success of the Jamaican Lottery. During its first nine months of operation, revenues have far exceeded expectations and player interest and acceptance continue to grow," concluded Mr. Cohen. Other Business Developments --------------------------- New York and Ohio recently passed legislation allowing each state to join the multi-state game, The Big Game, in an effort to fill budget shortfalls. Washington State's Senate also approved a measure that would allow the Washington State Lottery Commission to participate in The Big Game. The states of Virginia, Georgia, and Kentucky formed Lotto South, another multi-state lottery game designed to produce bigger payoffs for players and more profits for the participating states. New York State Legislature also passed a measure to allow video lottery terminals at eight racetracks. A decision regarding the award of the video lottery central system in New York is scheduled for the week of April 8, 2002. Certain statements contained in this Report 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: (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, statements relating to 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 fact that several of the Company's larger contracts are to be rebid within the next 12 months; (viii) the possibility of significant fluctuation of quarterly operating results; (ix) the intensity of competition in the lottery industry; (x) the possibility of substantial penalties and/or contract termination under the Company's contracts; (xi) the ability of the Company to respond to technological change and to satisfy the future technological demands of its customers; (xii) opposition to expansion of lottery and gaming; (xii) the Company's ability to attract and retain key employees; and (xiii) the possibility of adverse determination in pending legal proceedings. ooo GTECH, a leading global information technology company with $1 billion in revenues and 4,500 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 and related segments. For more information about the Company, please visit GTECH's website at http://www.gtech.com. -000- GTECH HOLDINGS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
February 23, February 24, 2002 2001 ---------------- -------------- (Dollars in thousands) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 35,095 $ 46,948 Trade accounts receivable 100,361 118,721 Sales-type lease receivables 4,894 8,722 Inventories 86,629 117,789 Deferred income taxes 28,321 26,850 Other current assets 22,730 18,798 --------- --------- TOTAL CURRENT ASSETS 278,030 337,828 SYSTEMS, EQUIPMENT AND OTHER ASSETS RELATING TO CONTRACTS 369,595 361,334 GOODWILL 116,828 122,325 OTHER ASSETS 89,376 116,673 --------- --------- TOTAL ASSETS $ 853,829 $ 938,160 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Short term borrowings $ 2,358 $ 2,316 Accounts payable 43,430 49,267 Accrued expenses 75,666 65,571 Employee compensation 37,941 31,898 Advance payments from customers 72,645 55,418 Income taxes payable 53,928 64,573 Current portion of long-term debt 3,510 3,512 --------- --------- TOTAL CURRENT LIABILITIES 289,478 272,555 LONG-TERM DEBT, less current portion 329,715 316,961 OTHER LIABILITIES 27,986 29,883 DEFERRED INCOME TAXES 3,695 4,399 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, 46,148,702 and 44,507,315 shares issued; 28,745,628 and 34,257,527 shares outstanding at February 23, 2002 and February 24, 2001, respectively 461 445 Additional paid-in capital 234,247 183,294 Equity carryover basis adjustment (7,008) (7,008) Accumulated other comprehensive loss (100,815) (85,852) Retained earnings 542,878 479,305 --------- --------- 669,763 570,184 Less cost of 17,403,074 and 10,249,788 shares in treasury at February 23, 2002 and February 24, 2001, respectively (466,808) (255,822) --------- --------- 202,955 314,362 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 853,829 $ 938,160 ========= =========
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year Ended --------------------------------------------- February 23, February 24, February 26, 2002 2001 2000 -------------- ------------- -------------- OPERATING ACTIVITIES Net income $ 68,026 $ 43,148 $ 93,585 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 154,071 156,262 168,284 Intangibles amortization 8,423 11,968 10,839 Goodwill amortization 6,049 6,165 6,253 Extraordinary charge, net of income tax benefit 7,760 -- -- Termination of interest rate swaps 2,364 12,970 -- Asset impairment charges 27,183 4,176 1,000 Special charges (credit) -- 42,270 (1,104) Deferred income taxes provision (benefit) (2,175) (13,335) 1,753 Equity in earnings of unconsolidated affiliates, net of dividends received (815) 343 (376) Other (3,799) 2,874 496 Changes in operating assets and liabilities, net of effects of acquisitions: Trade accounts receivable 19,234 (3,230) (9,648) Inventories 31,381 (50,369) (5,659) Special charge (7,995) (24,852) (4,954) Other assets and liabilities 35,523 63,580 (29,687) --------- --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 345,230 251,970 230,782 INVESTING ACTIVITIES Purchases of systems, equipment and other assets relating to contracts (176,511) (136,891) (128,618) Investments in and advances to unconsolidated affiliates -- (16,601) (16,209) Cash received from affiliates 3,786 2,075 -- Proceeds from sale of investments 2,098 1,050 -- Proceeds from the sale of majority interest in a subsidiary 10,000 -- -- Other (4,099) (12,199) (19,516) --------- --------- --------- NET CASH USED FOR INVESTING ACTIVITIES (164,726) (162,566) (164,343) FINANCING ACTIVITIES Net proceeds from issuance of long-term debt 359,810 95,908 221,500 Principal payments on long-term debt (349,130) (138,737) (192,936) Purchases of treasury stock (219,322) (19,587) (98,747) Proceeds from stock options 44,814 6,455 316 Tender premiums and prepayment fees (17,930) -- -- Debt issuance costs (6,539) -- (895) Other (44) 5,236 3,009 --------- --------- --------- NET CASH USED FOR FINANCING ACTIVITIES (188,341) (50,725) (67,753) Effect of exchange rate changes on cash (4,016) (2,846) 4,696 --------- --------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (11,853) 35,833 3,382 Cash and cash equivalents at beginning of year 46,948 11,115 7,733 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 35,095 $ 46,948 $ 11,115 ========= ========= =========
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS
Fiscal Year Ended -------------------------------------------------- February 23, February 24, February 26, 2002 2001 2000 ---------------- --------------- --------------- (Dollars in thousands, except per share amounts) Revenues: Services $ 831,787 $ 856,475 $ 860,419 Sales of products 177,914 80,068 150,379 ----------- ----------- ----------- 1,009,701 936,543 1,010,798 Costs and expenses: Costs of services 586,308 564,095 555,309 Costs of sales 136,452 74,844 101,953 ----------- ----------- ----------- 722,760 638,939 657,262 ----------- ----------- ----------- Gross profit 286,941 297,604 353,536 Selling, general and administrative 112,763 117,997 122,334 Research and development 33,779 49,267 46,053 Goodwill amortization 6,049 6,165 6,253 Special charges (credit) -- 42,270 (1,104) ----------- ----------- ----------- Operating expenses 152,591 215,699 173,536 ----------- ----------- ----------- Operating income 134,350 81,905 180,000 Other income (expense): Interest income 5,450 5,596 3,509 Equity in earnings of unconsolidated affiliates 3,959 3,167 2,843 Other income (expense) 1,353 7,232 (1,343) Interest expense (22,876) (27,165) (29,032) ----------- ----------- ----------- Income before income taxes and extraordinary charge 122,236 70,735 155,977 Income taxes 46,450 27,587 62,392 ----------- ----------- ----------- Income before extraordinary charge 75,786 43,148 93,585 Extraordinary charge on early retirement of debt, net of income tax benefit of $4,756 7,760 -- -- ----------- ----------- ----------- Net income $ 68,026 $ 43,148 $ 93,585 =========== =========== =========== Basic earnings per share: Income before extraordinary charge $ 2.57 $ 1.25 $ 2.58 Extraordinary charge (.26) -- -- ----------- ----------- ----------- $ 2.31 $ 1.25 $ 2.58 =========== =========== =========== Diluted earnings per share: Income before extraordinary charge $ 2.51 $ 1.25 $ 2.58 Extraordinary charge (.25) -- -- ----------- ----------- ----------- $ 2.26 $ 1.25 $ 2.58 =========== =========== ===========
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS
Fourth Quarter Fiscal Year Ended ------------------------------- February 23, February 24, 2001 2002 -------------- --------------- (Dollars in thousands, except per share amounts) Revenues: Services $ 215,190 $ 215,808 Sales of products 59,383 30,098 --------- --------- 274,573 245,906 Costs and expenses: Costs of services 159,878 133,372 Costs of sales 41,705 22,146 --------- --------- 201,583 155,518 --------- --------- Gross profit 72,990 90,388 Selling, general and administrative 29,420 28,624 Research and development 9,830 11,078 Goodwill amortization 1,493 1,474 Special charge -- 2,252 --------- --------- Operating expenses 40,743 43,428 --------- --------- Operating income 32,247 46,960 Other income (expense): Interest income 1,126 1,284 Equity in earnings of unconsolidated affiliates 129 553 Other income 610 20 Interest expense (4,401) (6,361) --------- --------- Income before income taxes and extraordinary charge 29,711 42,456 Income taxes 11,290 16,558 --------- --------- Income before extraordinary charge 18,421 25,898 Extraordinary charge on early retirement of debt, net of income tax benefit of $4,756 7,760 -- --------- --------- Net income 10,661 $ 25,898 ========= ========= Basic earnings per share: Income before extraordinary charge 0.64 $ 0.76 Extraordinary charge (0.27) -- --------- --------- 0.37 $ 0.76 ========= ========= Diluted earnings per share: Income before extraordinary charge 0.62 $ 0.75 Extraordinary charge (0.26) -- --------- --------- 0.36 $ 0.75 ========= =========