EX-99 3 kl07051_ex99-1.txt EXHIBIT 99.1 PRESS RELEASE Exhibit 99.1 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, 2003 -- 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: o 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. o $27 million worth of new instant ticket contract extensions, subject to contract completion. o 14% increase in cooperative services revenues from the comparable quarter in 2002. o Larger Powerball jackpots which helped increase online sales during the quarter. o More than $30 million in pari-mutuel contract extensions with customers in California, Illinois, Canada and Pennsylvania. o 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. o An agreement to extend Venue Management services at the Mohegan Sun Casino in Connecticut until 2006. o 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. -TABLES FOLLOW- 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 Six Months Ended June 30, Ended 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 -------------------------------------------------------------------- Venue Telecom- Lottery Pari-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 -------------------------------------------------------------------- Venue Telecom- Lottery Pari-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 -------------------------------------------------------------------- Venue Telecom- Lottery Pari-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 -------------------------------------------------------------------- Venue Telecom- Lottery Pari-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.