2014

Scientific Games Reports 13% Gain in Quarterly Revenue; 111% Increase in Pretax Profit; Diluted Earnings Per Share of $0.14 Expects to Revise Historical Non-Cash NOL Treatment



    NEW YORK, July 24 /PRNewswire-FirstCall/ -- SCIENTIFIC GAMES CORPORATION
 (Nasdaq:   SGMS) today reported that second quarter 2003 revenues increased 13%
 to $128.8 million from the $114.3 million reported in the second quarter of
 2002.   Pre-tax income increased 111% to $19.6 million in the second quarter
 of 2003 from $9.3 million in the second quarter of 2002.   Net income before
 the non-cash preferred stock dividend was $12.6 million or $0.14 per diluted
 share in the second quarter of 2003.  EBITDA (earnings before interest, taxes,
 depreciation and amortization) increased 17% to $37.1 million in the second
 quarter of 2003 from $31.6 million in the second quarter of 2002.
     For the first half of 2003, revenues were $252.1 million, compared to
 $221.2 million for the first six months of 2002.  Pre-tax income increased
 111% to $37.3 million in the first six months of 2003 from $17.7 million in
 the first six months of 2002.   Net income before the non-cash preferred stock
 dividend was $23.9 million or $0.27 per diluted share for first half of 2003.
 EBITDA increased 16% to $71.9 million in the first six months of 2003 from
 $61.7 million in the first six months of 2002.
     The Company also announced today that it expects to revise its previously
 filed financial statements for the year ended October 31, 2000 and subsequent
 periods through December 31, 2002.  These expected revisions arise from the
 merger of Autotote Corporation with Scientific Games International in
 September 2000.  The revisions will capitalize a portion of the net operating
 loss carryforward (NOL) as a deferred tax debit with a corresponding reduction
 in goodwill in prior periods rather than recognizing that portion of the NOL
 in the fourth quarter of 2002, as originally reported.  These expected
 restatements are non-cash adjustments that have no effect on previously
 reported revenues or EBITDA, nor do they have any effect on revenues, EBITDA
 or net income for fiscal 2003 and future years. Because the anticipated non-
 cash income tax adjustments for 2002 are not precisely defined, the Company
 has not made reference in this release to any 2002 net income information.
     In summarizing results of operations, Lorne Weil, Chairman and CEO of
 Scientific Games Corporation, said, "Lotteries, both online and instant, are
 becoming increasingly important revenue generators to states throughout the
 country, as these states continue to experience growing budget deficits.
 There also seems to be an increasing demand among players, with instant
 lottery sales having grown by nearly 9% in 2002, making this industry one of
 the fastest growing in the country.  In the past several weeks, Florida,
 Georgia and Pennsylvania have all announced record revenues."
     According to Weil, increased revenue and EBITDA were due primarily to
 continued strong instant lottery ticket sales - especially in states that
 utilize the company's cooperative services capability - as well as $5.6
 million in revenue and associated EBITDA contributed by MDI Entertainment,
 which was acquired at the beginning of the year.  Favorable foreign exchange
 rates were also a factor, Weil said.
     Weil highlighted several positive developments during the quarter:
 
      --   10% increase in instant ticket sales from the comparable quarter in
           2002.  States continue to experience budget deficits and look to
           state lotteries to help fill the gap with increased revenues.
 
      --   $27 million worth of new instant ticket contract extensions, subject
           to contract completion.
 
      --   14% increase in cooperative services revenues from the comparable
           quarter in 2002.
 
      --   Larger Powerball jackpots which helped increase online sales during
           the quarter.
 
      --   More than $30 million in pari-mutuel contract extensions with
           customers in California, Illinois, Canada and Pennsylvania.
 
      --   19% increase in Connecticut-based account wagering from the
           comparable quarter in 2002, in part due to promotions using the
           Trophy Club Player Tracking system.
 
      --   An agreement to extend Venue Management services at the Mohegan Sun
           Casino in Connecticut until 2006.
 
      --   24% increase in phone card revenues from the comparable quarter in
           2002.
 
     Weil said that the on-line lottery in Peru is scheduled to launch on
 August 1st.  This contract was announced in March 2003, and is estimated to be
 worth a minimum of $30 million in revenue over the first five years of its
 fifteen-year term.
     Weil also noted that the Company has continued the deployment of the
 eSuccess(R) security system as part of its initiative to provide enhanced
 security at its pari-mutuel racing facilities.  Scientific Games currently
 employs the eSuccess(R) security system throughout its lottery network, and no
 other totalisator service company is committed to providing this level of
 security to its customers.  Additionally, the Company expects that during the
 third quarter it will be introducing its new generation of Linux-based tote
 systems; this will provide far greater computing and communications power to
 its customers as well as allow for important technology synergies with
 Scientific Games' lottery group.
 
     Expected Revision in Historical Non-Cash NOL Treatment
     The previous accounting for the company's non-cash NOL carryforward is now
 expected to be revised as described above.
     Mr. Weil said, "We are very excited about our performance in the second
 quarter as the trends we have been discussing for some time continued to
 accelerate.  The technical determination regarding past accounting for the NOL
 carryforward comes as a surprise, however, it is an extremely arcane and
 complex accounting matter that is a non-cash item, that has no impact on
 actual historical operating performance, and that does not impact our 2003
 results or our future profitability in any way."
 
     Guidance
     We are maintaining our previous full year 2003 guidance of revenue of $500
 million to $550 million, EBITDA of $140 to $155 million and net income per
 diluted share of $0.53 to $0.63.
 
     Conference Call Details
     Scientific Games Corporation invites you to join its conference call today
 at 2:00 PM eastern time today by dialing 800-901-5247 or 617-786-4501 for
 international callers.  There will also be a live webcast accessible through
 www.scientificgames.com on the Investor Relations page.
     A replay of the conference call will be available until midnight on
 Friday, August 1, 2003 at 888-286-8010, or 617-801-6888 for international
 callers, passcode 92279126, and the webcast will be archived on
 www.scientificgames.com for 30 days.
 
     About Scientific Games
     Scientific Games Corporation is the leading integrated supplier of instant
 tickets, systems and services to lotteries, and the leading supplier of
 wagering systems and services to pari-mutuel operators.  It is also a licensed
 pari-mutuel gaming operator in Connecticut and the Netherlands and is a
 leading supplier of prepaid phone cards to telephone companies.  Scientific
 Games' customers are in the United States and more than 60 other countries.
 For more information about Scientific Games, please visit our web site at
 www.scientificgames.com.
 
     Safe Harbor
     This press release includes statements that constitute forward-looking
 statements made pursuant to the safe harbor provisions of the Private
 Securities Litigation Reform Act of 1995.  This information involves risks and
 uncertainties that could cause actual results to differ materially from the
 forward-looking statements.  For certain information regarding these risks and
 uncertainties, reference is made to Scientific Games' Annual Report on Form
 10-K for the fiscal year ended December 31, 2002 and the Quarterly Report on
 Form 10-Q for the period ended March 31, 2003.
 
     EBITDA Disclosure
     EBITDA is included in this press release as it is a basis upon which we
 assess our financial performance, and it provides useful information regarding
 our ability to service our debt.  EBITDA should not be considered in isolation
 or as an alternative to net income, cash flows from operations, or other
 consolidated income or cash flow data prepared in accordance with generally
 accepted accounting principles as measures of our profitability or liquidity.
 EBITDA as defined in this press release may differ from similarly titled
 measures presented by other companies.
 
      Company Contact:  Lisa D. Lettieri
                        212-318-9184
      Media Contact:    Shelley Spector
                        212-943-5858
 
 
                 SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
            Three Months and Six Months Ended June 30, 2002 and 2003
              (Unaudited, in thousands, except per share amounts)
 
                                   Three Months Ended       Six Months Ended
                                         June 30,                June 30,
                                     2002        2003        2002       2003
 
     Operating revenues:
       Services                   $96,760     110,130     189,263    215,397
       Sales                       17,507      18,719      31,976     36,670
                                  114,267     128,849     221,239    252,067
 
     Operating expenses
     (exclusive of depreciation and
      amortization shown below):
       Services                    55,237      59,886     108,486    117,514
       Sales                       11,676      12,531      20,914     24,938
       Amortization of service
        contract software           1,214       1,344       2,423      2,611
                                   68,127      73,761     131,823    145,063
 
     Total gross profit            46,140      55,088      89,416    107,004
     Selling, general and
      administrative expenses      15,753      19,369      30,113     37,711
     Depreciation and amortization  9,669       9,847      18,866     19,628
     Operating income              20,718      25,872      40,437     49,665
     Other deductions:
       Interest expense            11,561       6,172      23,012     12,404
       Other (income) expense       (161)          72       (229)       (32)
                                   11,400       6,244      22,783     12,372
 
     Income before income tax
      expense                       9,318      19,628      17,654     37,293
     Income tax expense              962*      7,058        2,093*    13,402
     Net income                    8,356*     12,570       15,561*    23,891
     Convertible preferred stock
      paid-in-kind dividend         1,851       1,895       3,654      3,742
 
     Net income available to
      common stockholders          $6,505*    10,675       11,907*    20,149
 
     Basic and diluted net income
      per share:
       Basic net income available
        to common stockholders      $0.15*      0.18         0.28*      0.34
       Diluted net income available
        to common stockholders      $0.12*      0.14         0.21*      0.27
     Weighted average number of
      shares used in per share
      calculations:
       Basic shares                43,048      59,868      42,546     59,660
       Diluted shares              71,983      89,228      74,041     88,386
 
      * Subject to expected revision
 
 
                 SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED SEGMENT OPERATING DATA
 
                   Three Months Ended June 30, 2002 and 2003
                           (Unaudited, in thousands)
 
                                      Three Months Ended June 30, 2002
 
                                       Pari-      Venue      Telecom-
                            Lottery    Mutuel   Management  munications
                             Group     Group      Group       Group   Totals
 
     Service revenues      $59,446     21,033     16,281        --   96,760
     Sales revenues          5,897      1,557         --    10,053   17,507
     Total revenues         65,343     22,590     16,281    10,053  114,267
     Cost of service        32,550     11,808     10,879        --   55,237
     Cost of sales           4,226        811         --     6,639   11,676
     Amortization of service
      contract software        538        676         --        --    1,214
     Total operating
      expenses              37,314     13,295     10,879     6,639   68,127
     Gross profit           28,029      9,295      5,402     3,414   46,140
     Selling, general
      and administrative
      expenses               7,041      2,499        685     1,075   11,300
     Depreciation and
      amortization           5,805      2,872        435       470    9,582
     Segment operating
      income               $15,183      3,924      4,282     1,869   25,258
     Unallocated corporate
      expense                                                         4,540
     Consolidated operating
      income                                                        $20,718
 
                                      Three Months Ended June 30, 2003
 
                                       Pari-      Venue      Telecom-
                            Lottery    Mutuel   Management  munications
                             Group     Group      Group       Group   Totals
 
     Service revenues      $72,530     20,775     16,825        --  110,130
     Sales revenues          5,511        776         --    12,432   18,719
     Total revenues         78,041     21,551     16,825    12,432  128,849
     Cost of service        36,969     11,250     11,666        --   59,885
     Cost of sales           3,833        469         --     8,229   12,531
     Amortization of service
      contract software        749        595         --        --    1,344
     Total operating
      expense               41,551     12,314     11,666     8,229   73,760
     Gross profit           36,490      9,237      5,159     4,203   55,089
     Selling, general and
      administrative
      expenses               9,072      3,140        847     1,177   14,236
     Depreciation and
      amortization           5,733      2,793        514       631    9,671
     Segment operating
      income               $21,685      3,304      3,798     2,395   31,182
     Unallocated corporate
      expense                                                         5,310
     Consolidated operating
      income                                                        $25,872
 
 
                 SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED SEGMENT OPERATING DATA
 
                    Six Months Ended June 30, 2002 and 2003
                           (Unaudited, in thousands)
 
                                        Six Months Ended June 30, 2002
 
                                       Pari-      Venue      Telecom-
                            Lottery    Mutuel   Management  munications
                             Group     Group      Group       Group   Totals
 
     Service revenues      $117,524    40,657     31,082         --  189,263
     Sales revenues           7,838     2,967        343     20,828   31,976
     Total revenues         125,362    43,624     31,425     20,828  221,239
     Cost of service         64,715    22,683     21,088         --  108,486
     Cost of sales            5,708     1,213        332     13,661   20,914
     Amortization of service
      contract software       1,121     1,302         --         --    2,423
     Total operating
      expenses               71,544    25,198     21,420     13,661  131,823
     Gross profit            53,818    18,426     10,005      7,167   89,416
     Selling, general and
      administrative
      expenses               13,524     4,337      1,314      2,223   21,398
     Depreciation and
      amortization           11,211     5,681        855        945   18,692
     Segment operating
      income                $29,083     8,408      7,836      3,999   49,326
     Unallocated corporate
      expense                                                          8,889
     Consolidated operating
      income                                                         $40,437
 
                                        Six Months Ended June 30, 2003
 
                                       Pari-      Venue      Telecom-
                            Lottery    Mutuel   Management  munications
                             Group     Group      Group       Group   Totals
 
     Service revenues      $143,494    39,705     32,198         --  215,397
     Sales revenues          11,558     2,816         --     22,296   36,670
     Total revenues         155,052    42,521     32,198     22,296  252,067
     Cost of service         73,300    21,998     22,215         --  117,513
     Cost of sales            8,318     1,722         --     14,898   24,938
     Amortization of service
      contract software       1,410     1,201         --         --    2,611
     Total operating expense 83,028    24,921     22,215     14,898  145,062
     Gross profit            72,024    17,600      9,983      7,398  107,005
     Selling, general and
      administrative
      expenses               18,305     5,372      1,749      2,391   27,817
     Depreciation and
      amortization           11,406     5,562      1,017      1,278   19,263
     Segment operating
      income                $42,313     6,666      7,217      3,729   59,925
     Unallocated corporate
      expense                                                         10,260
     Consolidated operating
      income                                                         $49,665
 
 
                 SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
             RECONCILIATION OF NET INCOME BEFORE NON-CASH PREFERRED
                           STOCK DIVIDENDS TO EBITDA
                           (Unaudited, in thousands)
 
                                     Three Months Ended      Six Months Ended
                                          June 30,               June 30,
                                      2002       2003        2002       2003
 
     Net income before non-cash
      preferred stock dividends     $8,356*    12,570      15,561*   23,891
     Add: Income tax expense           962*     7,058       2,093*   13,402
     Add: Depreciation and
      amortization expense          10,883     11,191      21,289     22,239
     Add: Interest expense          11,561      6,172      23,012     12,404
     Deduct: Other income
      (expense)                        161       (72)         229         32
     EBITDA                        $31,601     37,063      61,726     71,904
 
     * Subject to expected revision
 
     EBITDA, as included herein, represents operating income plus depreciation
 and amortization expenses.  EBITDA is included in this document as it is a
 basis upon which we assess our financial performance, and it provides useful
 information regarding our ability to service our debt.  EBITDA should not be
 considered in isolation or as an alternative to net income, cash flows from
 operations, or other consolidated income or cash flow data prepared in
 accordance with generally accepted accounting principles as measures of our
 profitability or liquidity.  EBITDA as defined in this document may differ
 from similarly titled measures presented by other companies.
 
 

SOURCE Scientific Games Corporation
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