SEARCH NEWS:

 

GTECH Financial Results Up for Q3

Commenting on the quarter, GTECH Chief Executive Officer and President Howard S. Cohen said, ``We delivered impressive results through our continued emphasis on improving productivity and operating efficiency, which contributed to exceeding both our operating income and earnings goals. Complementing our financial results this quarter were several positive business developments that we expect will enhance our competitive position and create sustainable shareholder value over the long term.''

GTECH Senior Vice President and Chief Financial Officer Jaymin B. Patel said, ``Our disciplined execution of numerous financial initiatives over the past several quarters has generated positive results. Today we are well-positioned to achieve our goal of delivering value to our shareholders through improved profitability and strong cash flows.''

Operating Results:

Revenues for the third quarter of fiscal 2002 totaled $263.6 million, an increase of 19.2% over the $221.0 million of revenues in the third quarter of fiscal 2001. Net income was $21.6 million, or $0.73 per diluted share, compared with net income of $18.3 million, or $0.53 per diluted share, for the same period last year.

Revenues for the first nine months of fiscal 2002 were $735.1 million, an increase of 6.4% over revenues of $690.6 million for the same period last year. Net income was $57.4 million, or $1.89 per diluted share, compared with net income of $17.3 million, or $0.50 per diluted share, for the same period last year.

The results for the first nine months of last year were negatively impacted by a special charge of $40.0 million, or $0.70 per diluted share, in connection with certain contractual obligations and a value assessment of the Company's business operations, and additional charges of $5.1 million, or $0.09 per diluted share, which principally related to the Company's restricted stock plan.

Third Quarter:

Service revenues were $196.4 million in the quarter, representing an 8.1% decrease from the $213.8 million of service revenues in the same quarter last year. This decrease was driven by the weakening of the Brazilian real against the U.S. dollar, along with the expiration of certain electronic benefits transfer contracts.

Had last year's average exchange rates prevailed throughout the most recent quarter, the Company estimates that service revenues would have declined by approximately 3.7% compared to the third quarter of last year.

Product sales in the third quarter of fiscal 2002 were $67.2 million, an increase of $60.0 million over the $7.2 million in the third quarter of fiscal 2001, primarily driven by the sale of terminals and software to Camelot, in the United Kingdom.

Service gross margins declined from 32.0% in the third quarter of fiscal 2001 to 29.6% in the third quarter of fiscal 2002, primarily driven by the weakening of the Brazilian real against the U.S. dollar.

Product margins improved to 23.8% in the third quarter of fiscal 2002 from negative (0.9%) in the third quarter last year, primarily due to the large volume of sales of terminals and software to Camelot. In addition, cost over-runs on a system installation in New South Wales negatively impacted prior year margins.

Operating expenses in the third quarter of fiscal 2002 were $36.2 million, a 4.7% reduction from the $38.0 million of operating expenses incurred in the third quarter of fiscal 2001, principally driven by the continued emphasis on improving productivity and efficiency, and the successful execution of the value assessment initiatives.

Year to Date:

Service revenues for the first nine months of fiscal 2002 were $616.6 million, representing a 3.8% decrease from the $640.7 million of service revenues in the same period last year. This decrease primarily reflects the weakening of the Brazilian real against the U.S. dollar.

Had last year's average exchange rates prevailed throughout the first nine months of fiscal 2002, the Company estimates that service revenues would have increased by approximately 0.7% compared to the same period last year.

Product sales in the first nine months of fiscal 2002 were $118.5 million, an increase of $68.5 million over the $50.0 million in the same period last year, primarily driven by the sale of terminals and software to Camelot.

Service gross margins declined to 30.8% compared to 32.8% in fiscal 2001, primarily driven by the weakening of the Brazilian real against the U.S. dollar, along with start-up losses on new lottery system installations.

Product margins improved to 20.1% this year from negative (5.5%) 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 negatively impacted prior year margins.

Operating expenses in the first nine months of fiscal 2002 were $111.8 million, a decline of $60.5 million compared to the $172.3 million of operating expenses incurred in the first nine months of fiscal 2001. This was principally due to the absence of $45.1 million of prior year special and additional charges, along with $15.4 million of reductions driven by the continued execution of the value assessment initiatives and increased emphasis on improving productivity and efficiency.

During the first nine months of fiscal 2002, the Company generated earnings before interest,taxes, depreciation, amortization and special and other non-cash charges, or EBITDA, of $243.5 million, an increase of $26.5 million over EBITDA of $217.0 million generated during the first nine months of fiscal 2001.

The Company's effective income tax rate decreased from 39% in the first nine months of fiscal 2001 to 38% in the same period this year, principally due to lower state taxes and a reduction in non-deductible expenses.

Cash Flow and Investments:

During the first nine months of fiscal 2002, the Company generated $119.5 million of free cash flow and repurchased $194.4 million of the Company's common stock. At the end of the fiscal 2002 third quarter, the Company had $292.0 million of revolving credit available under its $300.0 million credit facility.

Financial Outlook:

For the fourth quarter of fiscal year 2002, the Company expects quarter-over-quarter total revenue growth of approximately 9% to 10%, driven by product shipments. Service revenues are expected to be slightly lower than the fourth quarter of last year. Product sales are expected to be in the range of $50 -- $55 million.

The Company expects service gross profit margins in the range of 32% to 33% and product sale gross profit margins in the range of 20% to 22%.

The Company also expects to record an extraordinary charge against fourth quarter earnings in the amount of $11 to $14 million net of taxes, or $0.35 to $0.46 per share. The extraordinary charge will primarily consist of costs associated with the Company's plans to repay certain existing indebtedness and to refinance the debt related to the Company's World Headquarters. Excluding the extraordinary charge, the Company expects earnings for the fourth quarter and fiscal year ending February 23, 2002, to be in line with previous guidance of $0.81 to $0.86 and $2.70 to $2.75 per diluted share, respectively.

Share Repurchase:

GTECH also announced today that the Board of Directors has authorized a new share repurchase program for up to an aggregate amount of $75 million of the Company's outstanding common stock through February 2003. The new program is in addition to the unused capacity of approximately $16 million remaining in our existing program, which was scheduled to expire on June 30, 2002. It is contemplated that the share repurchases will be accomplished through periodic purchases on the open market. The timing of such purchases will be dependent upon market conditions and corporate considerations.

Offer To Purchase Existing Indebtedness:

The Company also announced today that it has launched an offer to purchase up to $150.0 million aggregate principal amount of its 7.75% Series A Guaranteed Senior Notes due 2004 and its 7.87% Series B Guaranteed Senior Notes due 2007 issued by GTECH Corporation. The offer expires at 12:00 midnight on January 9, 2002, unless extended or earlier terminated, and is conditioned on, among other things, raising debt to finance such purchases.

Other Highlights:

During the quarter, GTECH announced that it signed a new lottery operations and services contract with the Texas Lottery Commission to operate the Texas Lottery's integrated online and instant-ticket games. GTECH expects to generate revenues of approximately $750 million over the nine-year contract period. Facing budget shortfalls in their upcoming respective fiscal years, many states are looking to their lotteries to help raise additional non-tax revenues to help offset the anticipated shortfalls.

New York recently passed legislation allowing the state to join a multi-state game, such as Powerball or The Big Game, in an effort to fill a budget shortfall. New York expects the multi-state lottery game to generate approximately $200 to $300 million in incremental revenue. As the state's lottery service provider, GTECH will benefit from this as well. Recently, the Ohio legislature passed a similar multi-state initiative.

Also this quarter, Virginia, Kentucky and Georgia formed Lotto South, another multi-state lottery game designed to produce bigger payoffs for players and more profits for participating states.

``GTECH is seeing similar developments in other states that are considering ways to minimize budget shortfalls without raising taxes,'' said Cohen. ``We expect more states will follow New York's lead, and we hope to be part of their solution,'' concluded Cohen.

Since the close of the quarter, GTECH signed a new six-year facilities management contract to provide online lottery equipment to and services for the Kansas Lottery. The Company anticipates generating revenue of approximately $35 million over the six-year contract period.

< Gaming News