-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KfaIGqqFqdxwYPC1XUJ2zmSfqiu3TjAZLtB5wB1RRMGhwCmFqcJf1j9gx9gX+v8U 2ZGtzzAoYhC0KuncM/RvFw== 0000908662-03-000241.txt : 20031006 0000908662-03-000241.hdr.sgml : 20031006 20031006150151 ACCESSION NUMBER: 0000908662-03-000241 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20030912 ITEM INFORMATION: FILED AS OF DATE: 20031006 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GTECH HOLDINGS CORP CENTRAL INDEX KEY: 0000857323 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 050450121 STATE OF INCORPORATION: DE FISCAL YEAR END: 0223 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-11250 FILM NUMBER: 03929636 BUSINESS ADDRESS: STREET 1: 55 TECNOLOGY WAY CITY: WEST GREENWICH STATE: RI ZIP: 02817 BUSINESS PHONE: 4013921000 MAIL ADDRESS: STREET 1: 55 TECHNOLOGY WAY STREET 2: LEGAL DEPARTMENT CITY: WEST GREENWICH STATE: RI ZIP: 02817 8-K/A 1 form_8k-a.txt FORM 8-K/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------------------------------------------------------------------------- FORM 8-K/A Amendment No. 1 to CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (date of earliest event reported): September 12, 2003 ------------------------------------------------------------------------------- GTECH Holdings Corporation ------------------------------------ (Exact name of registrant as specified in its charter) DELAWARE ----------------- (State or other jurisdiction of incorporation) 1-11250 05-0451021 ----------------------------------------------------------------------------- (Commission file number) (IRS Employer Identification Number) 55 Technology Way, West Greenwich, Rhode Island 02817 ------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 401-392-1000 -------------------------------------------------------------------------- Explanatory Note: On September 12, 2003, a Form 8-K of GTECH Holdings Corporation ("GTECH") was filed with the Securities and Exchange Commission using the filing codes of GTECH Corporation, GTECH's wholly-owned subsidiary (the "Original Filing"). This Amendment No. 1 to Form 8-K (this "Amendment") hereby refiles the Form 8-K under the filing codes of GTECH. This Amendment does not otherwise amend or alter in any way the Original Filing, as filed on September 12, 2003. This Amendment speaks as of the date of the Original Filing, and GTECH has not updated the disclosure in this Amendment to speak as of any later date. Item 12. Results of Operations and Financial Condition. ---------------------------------------------- This Report incorporates by reference: (a) the press release issued by GTECH on September 12, 2003 respecting GTECH's fiscal 2004 second quarter results, which is attached as Exhibit 99(a) hereto, and (b) the scripts for GTECH's fiscal 2004 second quarter earnings conference call held on September 12, 2003, which are attached as Exhibit 99(b) hereto. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, as amended, GTECH Holdings Corporation has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. GTECH HOLDINGS CORPORATION By: /s/ Marc A. Crisafulli ---------------------------------------- Marc A. Crisafulli Senior Vice President and General Counsel Dated: October 6, 2003 Exhibit Index Exhibit Number Description ---------------------- -------------- Exhibit 99(a) Press Release dated September 12, 2003 Exhibit 99(b) September 12, 2003 Earnings Conference Call Scripts Exhibit 99(c) September 12, 2003 Earnings Conference Call Slide Presentation EX-99 3 exh_99a.txt EXHIBIT 99(A) 55 Technology Way Telephone: 401 392-1000 West Greenwich, Rhode Island 02817 Fax: 401 392-1234 USA Website: WWW.GTECH.COM For Immediate Release Contact: Robert K. Vincent September 12, 2003 Public Affairs GTECH Corporation 401-392-7452 GTECH ANNOUNCES RECORD EARNINGS PER SHARE Company Reports Fiscal Year 2004 Second Quarter Results; Revises Fiscal Year 2004 Estimates Upward WEST GREENWICH, RI - (September 12, 2003) - GTECH Holdings Corporation (NYSE:GTK) today announced second quarter earnings for fiscal year 2004 ended August 23, 2003. "We enjoyed another strong quarter," said GTECH President and CEO W. Bruce Turner. "Global same store sales grew by a healthy seven percent and we experienced solid jackpot activity. The growth in service revenues, combined with operational efficiencies in our business, enabled us to deliver service margins in excess of forty percent, and we generated earnings per share significantly higher than our expectations." Commenting on the quarter, GTECH Senior Vice President and Chief Financial Officer Jaymin B. Patel said, "We are delighted with the continued improvement in the underlying performance of the business, particularly with the substantial increase in service revenues. The strength of our core business, combined with the exciting opportunities that PolCard and Interlott offer, give us confidence that we can continue to increase profitability and generate strong returns for our shareholders." Operating Results - ----------------- Revenues for the second quarter of fiscal 2004 totaled $277.2 million, up 25.5% over the $221.0 million of revenues in the second quarter of fiscal 2003. Net income was $48.5 million, or $0.74 per diluted share, up 26.9% over net income of $38.2 million, or $0.66 per diluted share, for the same period last year. Revenues for the first six months of fiscal 2004 were $516.8 million, up 14.2% over revenues of $452.4 million in the first six months of fiscal 2003. Net income was $89.5 million, or $1.43 per diluted share, up substantially over net income of $67.2 million, or $1.14 per diluted share, for the same period last year. Second Quarter - -------------- Service revenues were $238.0 million in the quarter, up 12.5% over the $211.6 million of service revenues in the same quarter last year, driven by the continued strength of same store sales, strong jackpot activity, favorable exchange rates, and the acquisition of PolCard. Product sales in the second quarter of fiscal 2004 were $39.2 million, up substantially over the $9.4 million recorded in the second quarter of fiscal 2003, primarily driven by the sale of GTECH's new interactive, web-based software application, ES Interactive(TM), to the Company's customer in the United Kingdom. Service margins improved to 44.2% in the second quarter of fiscal 2004 from 40% in the prior year quarter. Fiscal 2004 second quarter service margins benefited from lower depreciation associated with existing contracts and improved operating efficiencies, combined with the impact of higher jackpot activity. Operating expenses in the second quarter of fiscal 2004 were $41.2 million, up $11.1 million compared to the $30.1 million of operating expenses incurred in the second quarter of fiscal 2003. This increase was driven by $6.9 million of increased spending on research and development as the Company continues its efforts to accelerate the development and deployment of industry-leading products into the marketplace and to execute against its commercial services strategy. In addition, selling, general, and administrative expense was up $4.2 million, primarily driven by business development activities in Poland and Mexico, increased marketing expenses primarily associated with trade shows and conferences, and the consolidation of PolCard. Year to Date - ------------ Service revenues were $461.6 million in the first six months of fiscal 2004, up 6% over the $435.3 million of service revenues in the same period last year, primarily due to worldwide same store sales growth. Product sales in the first six months of fiscal 2004 were $55.3 million, compared to $17.0 million recorded in the first six months of fiscal 2003, again, primarily driven by the sale of ES Interactive to GTECH's customer in the United Kingdom. Service margins improved to 43.8% compared to 37.1% in the first six months of fiscal 2003, primarily driven by lower depreciation associated with existing contracts and the absence of certain consulting costs incurred during the first six months of the prior year. Operating expenses in the first six months of fiscal 2004 were $79.8 million, up $20.3 million compared to the $59.5 million of operating expenses incurred during the first six months of fiscal 2003. This increase was driven by $14.8 million of increased spending on research and development and $5.5 million of increased selling, general, and administrative expense for the reasons outlined above. Cash Flow and Investments - ------------------------- During the first six months of fiscal 2004, GTECH generated $170.5 million of cash from operations, which, along with cash on hand, was principally used to fund investing activities totaling $204.8 million, including the acquisition of PolCard. At the end of the fiscal 2004 second quarter, the Company had no borrowings under its $300 million credit facility. During the fiscal 2004 second quarter, GTECH paid its first quarterly cash dividend of $0.17 per share to shareholders of record as of July 15, 2003, for a total of $9.9 million. Financial Outlook - ----------------- The Company revised earnings guidance for the fiscal year ending February 28, 2004. GTECH expects service revenue growth in the range of 7% to 8%, and product sales to be in the range of $120 million to $130 million. The Company expects service margins in the range of 41% to 43% for the current fiscal year and product margins in the range of 32% to 34%. Based on this outlook, the Company now expects earnings per share for fiscal 2004 to be in the range of $2.65 to $2.75 on a fully-diluted basis, compared with earnings per share of $2.43 reported in fiscal 2003. This is an upward revision of the previously announced $2.55 to $2.65 per share. In addition, in conjunction with the consolidation of the partnership that owns GTECH's headquarters facilities, in compliance with FASB Interpretation Number 46 (FIN 46) "Consolidation of Variable Interest Entities," the Company expects to report a one-time, non-cash, pre-tax gain in the amount of $0.05 per diluted share. Including the impact of this cumulative effect of accounting change, the Company expects to report earnings per share in the range of $2.70 to $2.80 on a fully diluted basis. Current diluted share estimates for the year are at 65 million shares. For the third quarter of fiscal 2004, ending November 22, 2003, GTECH expects service revenue growth in the range of 8% to 10%, and product sales in the range of $40 million to $45 million. The Company expects service margins in the range of 40% to 42%, and product margins in the range of 36% to 38%. Accordingly, GTECH expects diluted earnings per share to be in the range of $0.55 to $0.60 per share for the quarter, after considering the impact of its convertible debentures of approximately $0.06 per share. This compares to $0.57 reported in the same period last year. Including the one-time gain relating to the adoption of FIN 46 referenced above, the Company expects to report diluted earnings per share in the range of $0.60 to $0.65 per share. The third quarter outlook assumes a full quarter of revenues from PolCard and approximately two months of revenues from the pending acquisition of Interlott, scheduled to be completed on September 18, 2003. Second Quarter Highlights - ------------------------- In the second quarter of fiscal 2004, GTECH continued to execute against its growth strategy by signing new contracts and contract extensions both domestically and abroad. The Company was awarded a new five-year integrated services contract by the Wisconsin Lottery to provide a fully integrated online and instant ticket gaming system, and IP-based wireless telecommunications network. The Michigan Lottery signed a three-year contract extension with GTECH and exercised an option in its existing contract with GTECH for Club Keno(R). Additionally, GTECH extended its relationship with lottery customers in New Zealand, Sweden, Turkey, and with the Idaho Department of Fish and Game. GTECH also entered into a five-year agreement with The National Lotteries Control Board and The Betting Levy Board in Trinidad and Tobago to provide a complete video lottery solution, including a central system, video lottery terminals (VLTs), and communications network. After the close of the second quarter, GTECH strengthened its market leadership in the core lottery business when the Company was named the successful vendor to provide online lottery equipment and services to the Florida Lottery under a multi-year integrated services contract, following a competitive procurement. Also after the close of the quarter, GTECH signed an agreement with the Texas Lottery to provide 1,000 Altura(R) Self Service Terminals (SSTs) and 8,000 LED messaging displays; and a two-year extension agreement with its customer, Dansk Tipstjeneste, in Denmark. "These wins demonstrate GTECH's continued technical strength and financial soundness to compete in today's dynamic and highly competitive lottery industry," continued Mr. Turner. "In fact, Florida is the fourth consecutive jurisdiction to validate the strength of our technology offerings, by giving GTECH the highest technical score of all bidders. Scheduled to begin in February 2005, the Florida Lottery contract serves to secure future revenues for GTECH in fiscal 2006 and beyond." Other Business Developments - --------------------------- In the second quarter, GTECH successfully completed the acquisition of PolCard S.A., the leading credit and debit card merchant transaction acquirer and processor company in Poland. Also in the quarter, GTECH completed the final agreement and negotiations of a 20-year Master Contract with the Rhode Island Lottery that allows GTECH the right to be the exclusive provider of online, instant-ticket, and video lottery central systems and services. In addition, the Company will work with the Rhode Island Lottery to introduce a number of other government and commercial transaction services. As previously reported, the Company plans to relocate it headquarters facility to Providence, Rhode Island. A key component of the overall deal was a tax stabilization agreement for the Company's proposed World Headquarters in downtown Providence. The Providence City Council passed this agreement in early July. 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; and (xiii) the possibility of adverse determinations in pending legal proceedings. ooo GTECH, a leading global information technology company with $1 billion in revenues and approximately 4,600 people in 43 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. -000- Consolidated statement of operations to follow: CONSOLIDATED INCOME STATEMENTS GTECH HOLDINGS CORPORATION AND SUBSIDIARIES (Unaudited) Three Months Ended -------------------------- August 23, August 24, 2003 2002 ----- ---- (Dollars in thousands, except per share amounts) Revenues: Services $ 238,019 $ 211,600 Sales of products 39,228 9,358 --------- --------- 277,247 220,958 Costs and expenses: Costs of services 132,805 126,942 Costs of sales 28,810 4,109 --------- --------- 161,615 131,051 --------- --------- Gross profit 115,632 89,907 Selling, general and administrative 27,051 22,901 Research and development 14,106 7,170 --------- --------- Operating expenses 41,157 30,071 --------- --------- Operating income 74,475 59,836 Other income (expense): Interest income 1,021 977 Equity in earnings of unconsolidated affiliates 2,691 1,261 Other income 465 2,269 Interest expense (1,705) (2,718) --------- --------- 2,472 1,789 --------- --------- Income before income taxes 76,947 61,625 Income taxes 28,471 23,418 --------- --------- Net income $ 48,476 $ 38,207 ========= ========= Basic earnings per share $ 0.84 $ 0.67 ========= ========= Diluted earnings per share $ 0.74 $ 0.66 ========= ========= Weighted average shares outstanding - basic 57,918 57,225 ========= ========= Weighted average shares outstanding - diluted 65,908 58,299 ========= ========= Dividends per share - common stock $ 0.17 $ -- ========= ========= CONSOLIDATED INCOME STATEMENTS GTECH HOLDINGS CORPORATION AND SUBSIDIARIES (Unaudited) Six Months Ended ----------------------- August 23, August 24, 2003 2002 ---- ---- (Dollars in thousands, except per share amounts) Revenues: Services $ 461,557 $ 435,335 Sales of products 55,275 17,035 --------- --------- 516,832 452,370 Costs and expenses: Costs of services 259,602 273,877 Costs of sales 37,439 10,356 --------- --------- 297,041 284,233 --------- --------- Gross profit 219,791 168,137 Selling, general and administrative 51,331 45,810 Research and development 28,496 13,672 --------- --------- Operating expenses 79,827 59,482 --------- --------- Operating income 139,964 108,655 Other income (expense): Interest income 2,209 1,819 Equity in earnings of unconsolidated affiliates 4,620 1,957 Other income (expense) (715) 1,678 Interest expense (4,011) (5,643) --------- --------- 2,103 (189) --------- --------- Income before income taxes 142,067 108,466 Income taxes 52,565 41,218 --------- --------- Net income $ 89,502 $ 67,248 ========= ========= Basic earnings per share $ 1.56 $ 1.17 ========= ========= Diluted earnings per share $ 1.43 $ 1.14 ========= ========= Weighted average shares outstanding - basic 57,413 57,387 ========= ========= Weighted average shares outstanding - diluted 62,994 58,763 ========= ========= Dividends per share - common stock $ 0.17 $ -- ========= ========= CONSOLIDATED BALANCE SHEETS GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
(Unaudited) August 23, February 22, 2003 2003 ----- ---- ASSETS (Dollars in thousands) CURRENT ASSETS: Cash and cash equivalents $ 94,322 $ 116,174 Trade accounts receivable, net 106,564 107,666 Sales-type lease receivables 4,213 4,400 Inventories 57,448 72,287 Deferred income taxes 29,410 29,410 Other current assets 28,849 18,660 ----------- ----------- TOTAL CURRENT ASSETS 320,806 348,597 SYSTEMS, EQUIPMENT AND OTHER ASSETS RELATING TO CONTRACTS, net 504,348 410,911 GOODWILL, net 146,995 115,498 OTHER ASSETS 97,862 79,189 ----------- ----------- TOTAL ASSETS $ 1,070,011 $ 954,195 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 63,375 $ 74,042 Accrued expenses 53,565 51,200 Employee compensation 28,335 37,494 Advance payments from customers 75,162 69,706 Income taxes payable 50,118 54,043 Taxes other than income taxes 25,262 16,020 Short term borrowings 2,219 2,616 Current portion of long-term debt 8,813 6,992 ----------- ----------- TOTAL CURRENT LIABILITIES 306,849 312,113 LONG-TERM DEBT, less current portion 286,595 287,088 OTHER LIABILITIES 42,942 39,428 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, 92,296,404 and 92,296,404 shares issued; 58,235,704 and 56,638,331 shares outstanding at August 23, 2003 and February 22, 2003, respectively 923 923 Additional paid-in capital 245,962 235,266 Accumulated other comprehensive loss (91,433) (95,488) Retained earnings 765,230 684,653 ----------- ----------- 920,682 825,354 Less cost of 34,060,700 and 35,658,073 shares in treasury at August 23, 2003 and February 22, 2003, respectively (487,057) (509,788) ----------- ----------- 433,625 315,566 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,070,011 $ 954,195 =========== ===========
CONSOLIDATED STATEMENTS OF CASH FLOWS GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
(Unaudited) Six Months Ended ------------------------- August 23, August 24, 2003 2002 ----- ---- (Dollars in thousands) OPERATING ACTIVITIES Net income $ 89,502 $ 67,248 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 51,924 66,619 Intangibles amortization 1,762 3,369 Tax benefit related to stock award plans 10,696 7,299 Equity in earnings of unconsolidated affiliates, net of dividends received (289) 653 Other 3,748 3,731 Changes in operating assets and liabilities: Trade accounts receivable 9,769 8,490 Inventories 14,839 (12,780) Other assets and liabilities (11,497) 55,024 --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 170,454 199,653 INVESTING ACTIVITIES Purchases of systems, equipment and other assets relating to contracts (143,774) (88,395) Acquisitions (net of cash acquired) (41,023) -- Investments in and advances to unconsolidated subsidiaries (1,185) -- Other (18,785) (2,950) --------- --------- NET CASH USED FOR INVESTING ACTIVITIES (204,767) (91,345) FINANCING ACTIVITIES Net proceeds from issuance of long-term debt 1,409 -- Principal payments on long-term debt (2,146) (3,616) Purchases of treasury stock -- (42,453) Proceeds from stock options 21,101 14,331 Dividends paid (9,883) -- Other (484) 1,504 --------- --------- NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 9,997 (30,234) Effect of exchange rate changes on cash 2,464 1,737 --------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (21,852) 79,811 Cash and cash equivalents at beginning of period 116,174 35,095 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 94,322 $ 114,906 ========= =========
EX-99 4 exh_99b.txt EXHIBIT 99(B) Introduction and Safe Harbor Language - ------------------------------------- Good morning. And welcome to our second quarter conference call. With me this morning are Bruce Turner, our President and Chief Executive Officer, and Jaymin Patel, our Chief Financial Officer. In conjunction with today's call, a slide presentation highlighting our quarterly and year-to-date results will be broadcast over the web. You can find the call, and the presentation, under "Conference Calls and Calendar" in the "Investors" section of our website at www.gtech.com. You will also find supplemental financial data, consisting of non-GAAP reconciliations, specifically, our calculation of Return on Capital Employed, in the same section. All of this material will be archived. And, for your convenience, the slide presentation will also be available in a PDF format that you can download if you like. Before we begin today's call, I would like to inform you that comments on this call may contain forward-looking statements including, without limitation, statements relating to the future operations and financial performance of the Company and the Company's future strategies. Such forward-looking statements reflect management's assessment based on information currently available, but are not guarantees and are subject to risks and uncertainties which would cause the 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 here and in the Company's filings with the SEC, including our fiscal 2003 10K and subsequent filings. Now I would like to turn the call over to our host, Bruce Turner. GTECH Bruce Turner Q2 FY04 Conference Call Final- 12 September 2003 Thanks for joining us, everybody ... and welcome to our second-quarter call. In a few moments, Jaymin will provide an in-depth look at our second quarter and year to date results. But first, I would like to share my thoughts on GTECH's recent performance, our strategic progress, and the status of our recent acquisitions. First - as you have already seen - GTECH enjoyed another strong quarter. Global same-store sales grew by a healthy seven percent and we experienced solid jackpot activity. In addition, we continued to deliver service margins in excess of 40% with a record of 44.2% in the most recent quarter and we generated earnings per share of $0.74, which is significantly higher than our expectations. This of course includes the dilutive impact of our convertible bonds of approximately $0.07 per share. While jackpot activity is random and unpredictable over short time periods, the underlying business has never been stronger. The driving force in our growth continues to be the need among jurisdictions to close budget gaps caused by lower tax revenues. And recent events give us confidence that we will continue to benefit from the economic climate. For example, in June, we won a three-year contract extension from the Michigan Lottery. In an effort to increase revenues, Michigan is exercising an option in the contract that calls for us to provide equipment and services for Club Keno at up to 3,000 Lottery-designated locations throughout the state. The additional revenue from Keno will go a long way towards helping Michigan maintain adequate funding levels for public education. And the 3-year extension combined with keno will generate approximately $145 million in revenue to GTECH. Keno, a monitor-based game played every 4 to 5 minutes, is currently offered in 13 states; 11 of which are GTECH customers. As with the recent Keno launch in Missouri, the roll-out in Washington DC, and the approval in Michigan, a number of other domestic jurisdictions continue to take a close look at keno as a source of additional revenue...we will continue to work with lottery and other public officials in those jurisdictions and will provide further details at the appropriate time. In August, Texas announced their decision to join the multistate game Mega Millions. This game is expected to launch in the fourth quarter of this fiscal year and public forecasts suggest it will generate between $150 million and $180 million of incremental sales to the state of Texas in its first year. Texas will become the 36th US jurisdiction to offer a multistate game. Of the 3 remaining domestic lotteries, 2 are, or will soon be, GTECH customers ... California and Florida. Our tracking indicates that there are at least seventeen states now expected to consider expanding their lottery offerings in the next legislative session, which begins in January. Possible expansions include keno, and VLT's. We also had a number of significant contract wins in the second quarter. In Wisconsin, after a rebid in which we received the highest technical scores...we were selected to supply the state with a new online and instant-ticket system and wireless network. Like many of our recent wins, the GTECH solution will be based on our Enterprise Series platform and will include Altura terminals. But it's not just lotteries that are choosing Enterprise Series. Our open systems platform also forms the core of the new licensing system we are building for the Idaho Department of Fish and Game. Under the terms of a two-year contract extension we signed in July, we will be upgrading their current system to an Enterprise-Series-based solution featuring Web-enabled terminals and a new IP-based network. And we ensured that our sixteen-year relationship with the New Zealand Lotteries Commission will continue for at least another five years as a result of the contract extension we signed with them this summer. This was also a big quarter for video lottery. First, we gained a significant entry into the European video lottery marketplace by signing a video lottery central system contract with the lottery in Sweden. Besides ensuring the security and integrity of 7,000 VLTs in the network, our Enterprise Series-based solution will allow them to download new games directly from the central system to those terminals. We also signed a two-year contract to provide online lottery products and services to the Swedish Lottery. Another GTECH online customer, Trinidad and Tobago, also turned to GTECH recently for its video lottery needs. For the next five years, we will be providing our customer there with a complete video lottery solution, including technology and integration services. We expect this contract to generate about $70 million dollars in revenue to GTECH with margins in excess of our corporate average. As these wins suggest, video lottery is an opportunity we will continue to pursue vigorously, for several reasons. First, and most obviously, it is a logical extension of our existing business. Recent trends show more and more jurisdictions considering video lottery are choosing the model adopted by Delaware, Oregon, Rhode Island, New York, Alberta, Saskatchewan, Sweden, Norway, where video lottery terminals are regulated and operated by the lottery . . . a model that plays directly to our strengths. Second, our industry-leading lottery solutions, combined with the benefits of incumbency, offer us an advantage, because we can very effectively leverage our existing lottery facilities and resources to serve video lottery needs. Trinidad and Tobago is just the latest jurisdiction where we have successfully leveraged our position as the incumbent on-line central system provider to win new video lottery business. Today, GTECH enjoys four video lottery central systems contracts with North American customers, all of which are on-line lottery customers. Customers like the idea of having a single point of contact for all their lottery needs. Third and equally important, we are pursuing video lottery because it is a growing vertical within the overall lottery market. External sources have estimated North American electronic gaming sales to be approximately $7B in calendar year 2003. We expect this to grow to $9B by calendar year 2006, representing a compounded annual growth rate of approximately 9%, which is faster than online and instant lottery sales are growing. Kentucky, Minnesota and Pennsylvania are actively considering government-sponsored video gaming. There are also several international video lottery opportunities, including Norway and the Caribbean. More new business came after the close of the second quarter. Last week, after a public, competitive bid process, the Florida Lottery selected us to supply a new online lottery system. We expect this six-year contract to begin in early 2005, and it includes two two-year extension options. When completed, this will be one of the most technologically advanced lottery systems in the world - for one of the most progressive and prestigious lotteries in the world. In fact, Florida is now the fourth consecutive jurisdiction to validate the strength of our technology offerings, by giving us the highest technical score of all bidders. Besides our Enterprise Series platform, our Florida solution will include about 12,000 Altura terminals and 2,000 "Lottery Inside" point-of-sale licenses. For those of you who aren't familiar with "Lottery Inside," this technology allows us to embed lottery functionality within the retailer's existing POS equipment. Florida is the first major U.S. jurisdiction to accept this state-of-the-art player and retailer convenience solution. "Lottery Inside" will also enable us to expand the Florida distribution network by approximately 16%, with significant incremental economic benefit to both GTECH and the state of Florida. But Enterprise Series provides more than just new and advanced capabilities. It also enables us to deliver a high value solution and provide more profitable returns to GTECH as well as our customers. Because of our economies of scale and Enterprise Series operating efficiencies, we can deliver optimal total solution value, with improved delivery, attractive margins and positive value creation. Based on our sales growth expectations, we believe that revenues from this contract will be in the range of $23 to $25 million dollars in our first full year of operations, fiscal year 2006. While margins will approach the corporate average initially, we expect profitably to increase as we implement new games and solutions and drive sales. We will be negotiating the final contract over the coming months ... and we will provide you with more specific guidance as soon as that process has been completed. [PAUSE] The end of our second quarter marks the conclusion of a four and a half year period during which almost 60 percent of GTECH's service revenue contracts were up for rebid. These contracts were worth - on average -- approximately $500 million dollars per year to GTECH ... and we won the lion's share of them. We also won a number of extensions and new contracts. All told, we have secured more than $800 million of annual service revenues over the past four and a half years, representing more than 85% of our current annual service revenues. In addition, more than 85% of FY'05 service revenues are under contract today. Including extensions, the weighted average length of contracts in our current portfolio of business is more than 6 years, providing substantial revenue, earnings and cash flow visibility into the future. The key to our success in most cases was Enterprise Series. By successfully re-engineering our technology platform, we have been able to offer customers a richer ... more robust ... and adaptable solution ... at a very competitive price. But Enterprise Series is about value, not cost. Over the past six quarters we have invested more than $70million dollars in research and development...more than 50% has been specifically dedicated to Enterprise Series...and the benefits of that investment continue to multiply daily. By switching to an open systems/Java-based, modular platform, we have substantially expanded the distribution channels for lotteries. Now, instead of requiring players and retailers to use proprietary terminals ... our customers can bring the lottery directly to players on the devices they already use, including existing POS equipment ... mobile phones ... and PDAs. Enterprise Series also allows us to make lottery play more convenient through self-service terminals and stand-alone kiosks. And as I have already pointed out ... Enterprise Series allows us to expand the applications we offer and support well beyond the basic lottery, adding new functionality quickly and easily. As a result of the continued strength in service revenues, the benefits of our operating efficiency programs and our R&D investment, we have not only won new business ... we have also increased operating income margins to 27 percent and return on capital employed is now an industry-leading 24.1%. This return level is well in excess of our weighted average cost of capital. Please refer to the supplemental financial data provided on our website for our calculation of Return on Capital Employed. As Mary indicated, this can be accessed under "Conference Calls and Calendar" in the "Investors" section of www.gtech.com. We're very pleased with this performance ... and we are committed to investing five-to-six cents out of every revenue dollar to R&D. This will enable us to maintain our industry leadership ... to add new capabilities to serve our customers better ... and to help them stimulate new sales. [PAUSE] As we have discussed in the past, acquisitions are another key component of our growth strategy. I would like to take a few moments to provide an update on the status of the two acquisitions announced earlier this year. We completed our acquisition of Polcard in May and the integration is proceeding as planned. As part of the integration process, we have reviewed PolCard's revenue recognition practices and Jaymin will update you on our findings. Meanwhile, our Interlott acquisition is approaching completion. They are holding a special shareholders meeting on Wednesday, September 17th to vote on this transaction, and we expect to close on the deal the following day. We are delighted with Interlott's performance since we announced our intentions to acquire that company. Recently they reported their second-quarter numbers and the results were very strong. Quarterly revenues were up $12 million dollars, or 21 percent ... with an equally significant increase in earnings per share. They have also won several key bids recently, including Arizona, Maine, Maryland, and Massachusetts. The Maine and Maryland contracts are especially significant, because GTECH currently has no presence in either state. Their recent performance reaffirms our belief that this is a great strategic acquisition for GTECH. We look forward to seeing Interlott bring other new customers to GTECH in the near future. Due to the new closing date, driven by a longer than expected regulatory process, we have altered our outlook for Interlott's revenue contributions in the current fiscal year. Jaymin will discuss our financial outlook in more detail in a few minutes. Before I turn the call over to him, I am pleased to announce that we are once again increasing our earnings guidance for the fiscal year, based on our strong performance in the second quarter, continuing strength in same-store sales, and favorable foreign exchange trends. Based on our current outlook, we now expect to earn between $2.65 and $2.75 per share, on a fully diluted basis. This compares to earlier guidance of $2.55 to $2.65 per share. This guidance excludes the impact of a one-time, non-cash gain of approximately $5 million, or five cents per diluted share, that we will record in the third quarter. This gain is related to the consolidation of the partnership that owns our West Greenwich facility, which Jaymin will talk about in more detail. Including the impact of this cumulative effect of accounting change, we expect to report earnings per share in the range of $2.70 to $2.80 per share. And now I would like to turn the call over to our CFO, Jaymin Patel. Jaymin? GTECH FY'04 Q2 Earnings Conference Call Script Final- Sept. 12, 2003 Jaymin: Thank you Bruce. Good morning, everyone. I would like to start by reviewing GTECH's second-quarter performance. We are delighted with the continued improvement in the underlying performance of the business ... particularly with the substantial increase in service revenues and we are pleased to once again report earnings that exceed our expectations. Service revenues increased more than twenty six million dollars ($26M) or approximately thirteen percent (13%) in the second quarter, driven by a number of factors. A closer review of the underlying dynamics of the domestic and international lottery business will help to illustrate the key drivers of improvement in our service revenues. In the U.S., same store sales increased approximately five percent (5%), with the majority of our domestic jurisdictions enjoying improved sales. This increase in same store sales continues to be driven by the introduction of new games, modifications to existing games, such as matrix changes and more frequent drawings, expanded distribution channels and the marketing efforts of our customers. We also benefited from the launch of new service contracts and several large Powerball jackpots, one totaling two hundred and sixty million dollars ($260M) and one totaling hundred and fifteen million dollars ($115M). All told, domestic service revenues increased eight percent (8%) to one hundred and thirty million dollars ($130M) during the second quarter of last year. We also enjoyed a significant increase in second quarter international same store lottery sales, which grew by more than eleven percent (11%) on a constant currency basis. This increase reflects both the addition of new games and the more rapid growth rates typical of newer lottery jurisdictions. Factoring in contractual rate changes and the impact of favorable foreign exchange rates, our international lottery service revenues increased more than thirteen percent (13%), to approximately eighty-eight million dollars ($88M). I would like to note that this is the first time in more than four years (4 years) that we have experienced a positive contribution from period-to-period changes in foreign exchange. This was driven by the recent weakening of the US dollar against most major currencies, particularly the Brazilian Real, the British Pound, the Czech Koruna and the South African Rand. In addition, we recorded approximately twenty million dollars ($20M) of service revenue from commercial transaction processing, up from thirteen million dollars ($13M) in the same period last year. This increase was driven by the acquisition of PolCard, which contributed seven million dollars in the quarter. We also saw a strong increase in transaction volumes in Brazil, Chile, Jamaica and the Czech Republic, which served to offset the rate reduction in Brazil. Whilst we are still in the early stages of integrating PolCard, we are pleased that their performance met our expectations in the quarter. Product sales in the second quarter were thirty-nine million dollars ($39M), slightly less than anticipated due to the timing of the Interlott transaction. This thirty-nine million dollars ($39M) includes the sale of our new interactive, web-based solution, ES Interactive, to Camelot in the UK. Gross profits increased by approximately twenty-six million dollars ($26M) or twenty-nine percent (29%) quarter-over-quarter. Service gross profits increased approximately twenty-one million dollars ($21M) quarter-over-quarter. Lower depreciation combined with the increase in service revenues and the continued benefits of the on-going efficiencies program drove service margins to an all-time high of forty-four point two percent (44.2%) representing margin expansion of approximately four hundred and twenty basis points (420 bps) over the second quarter of last year. This was slightly higher than our first quarter margins of forty three point three percent (43.3%) and higher than our guidance due to the jackpot activity and the recognition of PolCard revenues on a net basis, a decision I will discuss in more detail in just a few moments. Product margins were in line with guidance, at twenty-six point six percent (26.6%). Operating expenses for the quarter were approximately forty-one million dollars ($41M), or fifteen percent (15 %) of total revenue. The four million dollar ($4M) increase in SG&A was driven primarily by business development activities in Poland and Mexico, increased marketing expenses primarily associated with trade shows and conferences, and the consolidation of PolCard. Our investment in research and development increased approximately seven million dollars ($7M). This level of investment reflects our continuing efforts to accelerate the development and deployment of industry-leading solutions into the marketplace and to execute against our commercial services strategy. As Bruce indicated, we are starting to see significant payback from the increased investments in research and development. In the last four contract wins, we received the highest technical scores, ensuring our success in those jurisdictions. The combined effect of higher revenues and gross margin expansion resulted in operating income growth of approximately fifteen million dollars ($15M) or twenty-five percent (25%). The substantial growth in operating income, coupled with slightly higher other income and a lower effective tax rate, drove our net income up ten million dollars ($10M) or twenty-seven percent (27%). And diluted earnings per share increased approximately twelve percent (12%), based upon a higher share count of sixty-five point nine million shares (65.9M). This increase in weighted average shares outstanding was driven primarily by the impact of our convertible bonds, which were convertible into equity throughout the entire second quarter. This impacted earnings per share by approximately seven cents ($0.07) in the quarter. During the quarter, we generated approximately one hundred and eight million dollars ($108M) in cash flows from operations, which is comparable to the second quarter of last year. This, combined with cash on hand, financed approximately one hundred and forty-five million dollars ($145M) of investments in new contract assets and the acquisition of PolCard. Also in the quarter, we made our first dividend payment in the amount of seventeen cents per share ($0.17), for a total of approximately ten million dollars ($10M). Now, let's turn to GTECH's performance on a year to date basis. Service revenues for the six months ended August 23rd were up twenty-six million dollars ($26M) or six percent (6%) over the same period of fiscal year 2003, primarily due to strong increases in same store sales around the world. On a constant currency basis, service revenues increased approximately thirty million dollars ($30M) or seven percent (7%) year-over-year. Product sales were higher in the first six months of this year, primarily due to timing. Year-to-date, we recorded two hundred fifty-eight million dollars ($258M) in revenue from our US lottery group --- two hundred and twenty six million dollars ($226M) from the international lottery group --- and thirty-two million dollars in commercial services ($32M). In the first six months of the fiscal year, we generated approximately one hundred and seventy-one million dollars ($171M) in cash from operations. This was twenty-nine million dollars ($29M) less than the first six months of last year, due to lower advance payments from customers. In the six months ended August, we invested two hundred and five million dollars ($205M), primarily in new contract assets and the acquisition of PolCard. Return on capital employed increased from twenty one point three percent (21.3%) to twenty four point one percent (24.1%) year-over-year, as we continue to drive value from our asset base and invest capital in new value-creating projects. Again, our calculation of Return on Capital Employed is provided in the Supplemental Financial Data File posted on our website. Please click on "Conference Calls & Calendar" in the "Investors" section of www.gtech.com. Those are the key financial highlights of our second quarter and year-to-date. Now I would like to turn our attention to the outlook for the remainder of fiscal year 2004. As Bruce mentioned, based upon the strength of our second quarter performance, we are now confident in our ability to deliver better-than-anticipated results for this fiscal year. Based on our current outlook, we expect service revenues to grow seven to eight percent (7% - 8%) year over year. This growth level reflects the following key assumptions: 1. Same store sales growth of five to six percent (5% - 6%), which is consistent with previous guidance, 2. The net effect of contract wins and contractual rate changes, 3. An average exchange rate of three point one Brazilian real (BRL 3.1) to the US dollar, compared to three point three real (BRL3.3) in our previous outlook, and 4. The impact of our recently announced acquisitions. This differs slightly from our original guidance, reflecting a more conservative methodology for the recognition of PolCard revenues and the timing of the Interlott acquisition. Since completing the acquisition of PolCard, we have reviewed its revenue recognition practices and compared them against trends and accounting practices in the transaction acquiring industry as well as US GAAP. Historically, Polcard has accounted for revenues on a gross basis, deducting interchange fees paid to banks and fees paid to payment card networks as a cost of service. However, leaders in the U.S. transaction acquiring industry generally record revenues net of interchange and network fees. This has led us to conclude that the appropriate accounting method for PolCard is to record revenue on a net basis. We have chosen to apply this method to PolCard revenues from the first quarter of ownership. Whilst this slightly alters our fiscal 2004 outlook for both revenues and service margins, it has no impact on our net income and earnings per share expectations for this business. ... nor does it change our goal of achieving approximately 25 percent of revenues from commercial services by the end of fiscal year 2007. Our outlook now includes approximately $18 to $20 million dollars from PolCard in fiscal 2004 adjusted for net revenue recognition. We expect product sales in the range of one hundred and twenty million to one hundred and thirty million dollars ($120M to $130M). We now expect service margins in the range of forty-one to forty-three percent (41% to 43%) and product margins in the range of thirty-two to thirty-four percent (32% to 34%). We expect operating expenses to be in the range of one hundred and sixty-five to one hundred and seventy million dollars ($165M - $170M), reflecting the impact of the acquisitions and increased investments in commercial services and research and development. Based upon this outlook, we now believe that diluted earnings per share will be in the range of two dollars and sixty-five cents to two dollars and seventy-five cents ($2.65 to $2.75) for fiscal year 2004. This guidance is ten cents per share higher than the range of guidance we gave in June. As Bruce indicated, in compliance with FASB Interpretation Number 46, or FIN 46, we plan to consolidate the partnership that owns our corporate headquarters in West Greenwich, RI in the third quarter of this year. The consolidation of the partnership will increase balance sheet assets and liabilities in the range of twenty-seven to thirty million dollars ($27M - $30M). This will also result in a one-time, non-cash, pre-tax gain in the range of four to five million dollars ($4M - $5M) in other income in the third quarter of this year, which is not included in the guidance I have just provided. Including this gain, we expect to report earnings per share in the range of two dollars and seventy to two dollars and eighty cents ($2.70 - $2.80) for the full year. We do not believe this consolidation is material to the overall financial statements. Furthermore, given that we have always recognized the full economic impact of this partnership through our income statement, the consolidation will have no impact on future operations and earnings expectations. Our guidance for fiscal 2004 earnings are based on a diluted share estimate of sixty-five million (65M) shares, compared to fifty-eight point four million (58.4M) shares in fiscal 2003, reflecting the impact of the convertible bonds, which became convertible on May first of this year. We expect net cash invested to be in the range of three hundred and seventy to three hundred and eighty million dollars ($370M - $380M) for the year. We expect to invest two hundred and seventy to two hundred and eighty million dollars ($270M - $280M) in new contract assets and growth opportunities within the existing business and the balance in the two previously announced acquisitions. With respect to our recent win in Florida, we plan to invest capital for the new system next year, in our fiscal year 2005. Cash from operations and existing cash balances will fund this investing activity. Now let's look at the outlook for our third quarter, which ends November 22nd. We expect service revenues to increase eight to ten percent (8% - 10%) quarter over quarter. This guidance assumes a full quarter of revenues from PolCard and approximately two months of revenues from Interlott. We expect product sales to be in the range of forty to forty-five million dollars ($40M - $45M). We expect service margins in the range of forty to forty-two percent (40% - 42%) and we expect product margins in the range of thirty six to thirty eight percent (36% to 38%). This is somewhat higher than recent averages, reflecting a number of small equipment sales expected in the quarter. Based on this outlook, we expect earnings per share to be in the range of fifty-five to sixty cents ($0.55 to $0.60) per share on a fully diluted basis, after considering the dilutive impact of our convertible debentures of approximately six cents ($0.06). This compares to the fifty-seven cents ($0.57) per share we reported in the third quarter of fiscal year 2003. Including the impact of the one-time gain I just mentioned, we expect to report earnings per share in the range of sixty to sixty-five cents in the quarter. To summarize ... we continue to be encouraged by the positive trends we are seeing in the business. The strength of our core business, combined with the exciting opportunities that PolCard and Interlott offer - - - give us confidence that we can continue to increase profitability and generate strong returns for our shareholders. Thank you for your attention. Now Bruce and I would be happy to answer any questions that you may have. EX-99 5 exh_99c.txt EXHIBIT 99(C) W. Bruce Turner President & Chief Executive Officer Jaymin B. Patel Senior Vice President & Chief Financial Officer Fiscal Year 2004 - Second Quarter Earnings Conference CallSeptember 12, 2003 Safe Harbor Act. . . |X| Comments made during this presentation may contain forward-looking statements, including, without limitation, statements relating to the future operations and financial performance of the Company and the Company's future strategies. Such forward-looking statements reflect management's assessment based on information currently available, but are not guarantees and are subject to risks and uncertainties, which would cause the results to differ materially from those contemplated in the forward-looking statements. These risks and uncertainties include, but are not limited to, those set forth here and in the Company's filings with the SEC, including our Fiscal 2003 10K and subsequent filings. Agenda. . . |X| W. Bruce Turner, Chief Executive Officer o Welcome o Q2 and YTD Performance Review o Strategic Progress Report o Status of Acquisitions |X| Jaymin B. Patel, Chief Financial Officer o Review of Q2 and YTD Financial Results o Updated Guidance for Fiscal Year 2004 and Q3 FY'04 Customer Successes. . .
Base Term Points Base Term Contract Value of Sale [Extensions] ($ in millions) (in thousands) (in years) ------------------------ ------------------------ ------------------ Rhode Island 700 4.3 20 Florida 160 9.1 6[4] Michigan 145 7.8 5 Trinidad & Tobago 70 0.7 5[2] Wisconsin 50 3.3 5[4] Sweden 20 10.0 2 New Zealand 5 0.9 5[3] Idaho* 5 0.5 3 *Department of Fish & Game
Before ES With ES - ----------------------------------- ------------------------------------- Single terminal Points of Access... Traditional lottery, Lottery Inside, SSTs, Interactive - ----------------------------------- ------------------------------------- - ----------------------------------- ------------------------------------- Limited reusability and Middleware... Substantial reusability and much flexibility improved flexibility - ----------------------------------- ------------------------------------- - ----------------------------------- ------------------------------------- General purpose transaction engine driving: Lottery Fish & Game Primarily lottery Applications... Bill Payments Pre-paid Top-ups Business Management Support - ----------------------------------- -------------------------------------
Fiscal Year 2004 - Second Quarter Earnings Call Lottery Contract Rebid Summary. . . |X| Completed major rebid cycle |X| Secured $800 million of annual recurring service revenues |X| Long-term contracts provide visible and predictable service revenue and cash flow streams. . . o Average contract length approximately 6 years (including extensions) |X| Over 85% of FY'05 service revenues under contract Fiscal Year 2004 - Second Quarter Earnings Call Acquisition Update. . . |X| Polcard o Deal closed in May o Integration on track |X| Interlott o Shareholder meeting on September 17th o Expected to close September 18th |X| Interlott Q2 results o Quarterly revenues +21% o Increased earnings per share Fiscal Year 2004 - Second Quarter Earnings Call Key Financial Highlights. . . Q2 FY'04 vs FY'03
|X| Total Revenue +26% o Service Revenues +13% Strong same store sales |X| Gross Profits +29% o Service gross profits +24% Robust margins - 44.2% |X| Operating Income +25% |X| Net Income +27% |X| Diluted Earnings Per Share +12% Reflects impact of convertible bond
Fiscal Year 2004 - Second Quarter Earnings Call Service Revenue Analysis. . . Q2 FY'04 vs FY'03
U.S. International Lottery Lottery Commercial Services GTECH Total $M % $M % $M % $M % ------------ ---------- ------------- ------------- ------------ ---------- ---------- --------- FY'03 121 77 13 211 Same Store Sales 6 +5% 9 +11% 1 +11% 16 +7% Net, All Other* 3 +3% 2 +2% 6 +46% 11 +6% FY'04 130 +8% 88 +13% 20 +57% 238 +13% *Reflects contract wins, jackpot activity, contractual rate changes, foreign exchange changes
Fiscal Year 2004 - Second Quarter Earnings Call
Key Financial Highlights. . . Q2 FY'04 vs FY'03 |X| Total Revenue +26% o Service Revenues +13% Strong same store sales |X| Gross Profits +29% o Service gross profits +24% Robust margins - 44.2% |X| Operating Income +25% |X| Net Income +27% |X| Diluted Earnings Per Share +12% Reflects impact of convertible bond
Fiscal Year 2004 - Second Quarter Earnings Call Cash Flow. . . Q2 FY'04 [GRAPHIC OMITTED] Fiscal Year 2004 - Second Quarter Earnings Call FY'04 YTD Revenues. . . [GRAPHIC OMITTED] Fiscal Year 2004 - Second Quarter Earnings Call Cash Flow. . . YTD FY `04 [GRAPHIC OMITTED] Fiscal Year 2004 - Second Quarter Earnings Call Return on Capital Employed. . . Six months ended August 23, 2003 [GRAPHIC OMITTED] Fiscal Year 2004 - Second Quarter Earnings Call FY'04 Guidance. . . As of September 12, 2003 FY'04 - ------------------------------------------------------------------------ Service Revenue Growth 1 7% - 8% Product Sales 1 $120M - $130M Service Gross Profit Margins 42% - 44% Product Sales Gross Profit Margins 32% - 34% Earnings per Share Excluding One-Time Gain 2 $2.65 - $2.75 Reported Earnings per Shar e2 $2.70 - $2.80 Net Cash Invested $370M - $380M 1 Includes acquisition of PolCard and Interlott 2 Based on Diluted Share Estimate of 65.0M Shares, reflecting impact of convertible bond dilution Fiscal Year 2004 - Second Quarter Earnings Call Q3 FY'04 Guidance. . . As of September 12, 2003 Q3 FY'04 - -------------------------------------------------------------------------------- Service Revenue Growth 1 8% - 10% Product Sales 1 $40M - $45M Service Gross Profit Margins 40% - 42% Product Sales Gross Profit Margins 36% - 38% Earnings per Share Excluding One-Time Gain 2 $0.55 - $0.60 Reported Earnings per Share 2 $0.60 - $0.65 1 Includes acquisition of PolCard and Interlott 2 Based on Diluted Share Estimate of 66.7M Shares, reflecting impact of convertible bond dilution -----END PRIVACY-ENHANCED MESSAGE-----