UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
{Mark One}
|
ý |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2004
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File number: 0-13063
SCIENTIFIC GAMES CORPORATION
(Exact name of registrant as specified in its charter)
|
Delaware |
|
81-0422894 |
|
(State or other
jurisdiction of |
|
(I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(Zip Code)
(212) 754-2233
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ý No o
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of November 4, 2004:
|
|
Class A Common Stock: 88,084,307 Class B Common Stock: None |
|
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND OTHER INFORMATION
THREE MONTHS ENDED SEPTEMBER 30, 2004
2
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
(Unaudited, in thousands, except per share amounts)
|
|
|
December 31, |
|
September 30, |
|
|
|
ASSETS |
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
79,373 |
|
96,629 |
|
|
Accounts receivable, net of allowance for doubtful accounts of $4,589 and $3,767 at December 31, 2003 and September 30, 2004, respectively |
|
99,639 |
|
100,534 |
|
|
|
Inventories |
|
26,896 |
|
32,391 |
|
|
|
Prepaid expenses, deposits and other current assets |
|
31,457 |
|
31,135 |
|
|
|
Total current assets |
|
237,365 |
|
260,689 |
|
|
|
Property and equipment, at cost |
|
473,610 |
|
509,128 |
|
|
|
Less accumulated depreciation |
|
244,880 |
|
264,896 |
|
|
|
Net property and equipment |
|
228,730 |
|
244,232 |
|
|
|
Goodwill, net |
|
308,355 |
|
303,786 |
|
|
|
Operating right, net |
|
14,020 |
|
14,020 |
|
|
|
Other intangible assets, net |
|
77,428 |
|
72,773 |
|
|
|
Other assets and investments |
|
97,091 |
|
103,591 |
|
|
|
Total assets |
|
$ |
962,989 |
|
999,091 |
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
Current installments of long-term debt |
|
$ |
6,327 |
|
7,010 |
|
|
Accounts payable |
|
34,603 |
|
29,125 |
|
|
|
Accrued liabilities |
|
117,493 |
|
93,325 |
|
|
|
Total current liabilities |
|
158,423 |
|
129,460 |
|
|
|
Deferred income taxes |
|
4,595 |
|
3,993 |
|
|
|
Other long-term liabilities |
|
36,983 |
|
38,698 |
|
|
|
Long-term debt, excluding current installments |
|
525,836 |
|
523,621 |
|
|
|
Total liabilities |
|
725,837 |
|
695,772 |
|
|
|
Commitments and contingencies |
|
— |
|
— |
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
|
Series A convertible preferred stock, par value $1.00 per share, 1,600 shares authorized, 1,325 shares outstanding at December 31, 2003 and none outstanding at September 30, 2004 |
|
1,325 |
|
— |
|
|
|
Series B preferred stock, par value $1.00 per share, 2 shares authorized, 1.238 shares outstanding at December 31, 2003 and none outstanding at September 30, 2004 |
|
1 |
|
— |
|
|
|
Class A common stock, par value $0.01 per share, 199,300 shares authorized, 61,504 and 87,709 shares outstanding at December 31, 2003 and September 30, 2004, respectively |
|
615 |
|
877 |
|
|
|
Class B non-voting common stock, par value $0.01 per share, 700 shares authorized, none outstanding |
|
— |
|
— |
|
|
|
Additional paid-in capital |
|
405,957 |
|
415,901 |
|
|
|
Accumulated losses |
|
(169,649 |
) |
(112,980 |
) |
|
|
Treasury stock, at cost |
|
(6,743 |
) |
(9,262 |
) |
|
|
Accumulated other comprehensive income |
|
5,646 |
|
8,783 |
|
|
|
Total stockholders’ equity |
|
237,152 |
|
303,319 |
|
|
|
Total liabilities and stockholders’ equity |
|
$ |
962,989 |
|
999,091 |
|
See accompanying notes to consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended September 30, 2003 and 2004
(Unaudited, in thousands, except per share amounts)
|
|
|
2003 |
|
2004 |
|
|
|
Operating revenues: |
|
|
|
|
|
|
|
Services |
|
$ |
110,350 |
|
152,636 |
|
|
Sales |
|
21,713 |
|
26,673 |
|
|
|
|
|
132,063 |
|
179,309 |
|
|
|
Operating expenses (exclusive of depreciation and amortization shown below): |
|
|
|
|
|
|
|
Services |
|
60,174 |
|
84,039 |
|
|
|
Sales |
|
15,229 |
|
18,450 |
|
|
|
Amortization of service contract software |
|
1,325 |
|
553 |
|
|
|
|
|
76,728 |
|
103,042 |
|
|
|
Total gross profit |
|
55,335 |
|
76,267 |
|
|
|
Selling, general and administrative expenses |
|
18,741 |
|
23,273 |
|
|
|
Depreciation and amortization |
|
9,866 |
|
14,528 |
|
|
|
Operating income |
|
26,728 |
|
38,466 |
|
|
|
Other deductions (income): |
|
|
|
|
|
|
|
Interest expense |
|
6,171 |
|
7,692 |
|
|
|
Other income |
|
(199 |
) |
(313 |
) |
|
|
|
|
5,972 |
|
7,379 |
|
|
|
Income before income tax expense |
|
20,756 |
|
31,087 |
|
|
|
Income tax expense |
|
7,519 |
|
9,626 |
|
|
|
Net income |
|
13,237 |
|
21,461 |
|
|
|
Convertible preferred stock dividend |
|
1,942 |
|
757 |
|
|
|
Net income available to common stockholders |
|
$ |
11,295 |
|
20,704 |
|
|
Basic and diluted net income per share (See Note 1): |
|
|
|
|
|
|
|
Basic net income available to common stockholders |
|
$ |
0.19 |
|
0.26 |
|
|
Diluted net income available to common stockholders |
|
$ |
0.15 |
|
0.24 |
|
|
Weighted average number of shares used in per share calculations: |
|
|
|
|
|
|
|
Basic shares |
|
60,123 |
|
78,661 |
|
|
|
Diluted shares |
|
89,196 |
|
90,777 |
|
|
See accompanying notes to consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF INCOME
Nine Months Ended September 30, 2003 and 2004
(Unaudited, in thousands, except per share amounts)
|
|
|
2003 |
|
2004 |
|
||
|
Operating revenues: |
|
|
|
|
|
||
|
Services |
|
$ |
325,747 |
|
441,839 |
|
|
|
Sales |
|
58,383 |
|
101,047 |
|
||
|
|
|
384,130 |
|
542,886 |
|
||
|
Operating expenses (exclusive of depreciation and amortization shown below): |
|
|
|
|
|
||
|
Services |
|
177,688 |
|
237,568 |
|
||
|
Sales |
|
40,167 |
|
69,861 |
|
||
|
Amortization of service contract software |
|
3,936 |
|
3,584 |
|
||
|
|
|
221,791 |
|
311,013 |
|
||
|
Total gross profit |
|
162,339 |
|
231,873 |
|
||
|
Selling, general and administrative expenses |
|
56,452 |
|
77,620 |
|
||
|
Depreciation and amortization |
|
29,494 |
|
42,094 |
|
||
|
Operating income |
|
76,393 |
|
112,159 |
|
||
|
Other deductions (income): |
|
|
|
|
|
||
|
Interest expense |
|
18,575 |
|
22,889 |
|
||
|
Other income |
|
(231 |
) |
(89 |
) |
||
|
|
|
18,344 |
|
22,800 |
|
||
|
Income before income tax expense |
|
58,049 |
|
89,359 |
|
||
|
Income tax expense |
|
20,921 |
|
27,969 |
|
||
|
Net income |
|
37,128 |
|
61,390 |
|
||
|
Convertible preferred stock dividend |
|
5,684 |
|
4,721 |
|
||
|
Net income available to common stockholders |
|
$ |
31,444 |
|
56,669 |
|
|
|
Basic and diluted net income per share (See Note 1): |
|
|
|
|
|
||
|
Basic net income available to common stockholders |
|
$ |
0.53 |
|
0.83 |
|
|
|
Diluted net income available to common stockholders |
|
$ |
0.43 |
|
0.68 |
|
|
|
Weighted average number of shares used in per share calculations: |
|
|
|
|
|
||
|
Basic shares |
|
59,758 |
|
67,958 |
|
||
|
Diluted shares |
|
87,157 |
|
90,511 |
|
||
See accompanying notes to consolidated financial statements.
5
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2003 and 2004
(Unaudited, in thousands)
|
|
|
2003 |
|
2004 |
|
||
|
Cash flows from operating activities: |
|
|
|
|
|
||
|
Net income |
|
$ |
37,128 |
|
61,390 |
|
|
|
Adjustments to reconcile net income to cash provided by operating activities: |
|
|
|
|
|
||
|
Depreciation and amortization |
|
33,430 |
|
45,678 |
|
||
|
Change in deferred income taxes |
|
16,193 |
|
5,443 |
|
||
|
Non-cash interest expense |
|
1,115 |
|
1,576 |
|
||
|
Changes in operating assets and liabilities, net of effects of business acquisitions |
|
(21,829 |
) |
(31,568 |
) |
||
|
Other |
|
724 |
|
128 |
|
||
|
Total adjustments |
|
29,633 |
|
21,257 |
|
||
|
Net cash provided by operating activities |
|
66,761 |
|
82,647 |
|
||
|
Cash flows from investing activities: |
|
|
|
|
|
||
|
Capital expenditures |
|
(8,726 |
) |
(17,056 |
) |
||
|
Wagering systems expenditures |
|
(13,855 |
) |
(34,963 |
) |
||
|
Business acquisition, net of cash acquired |
|
(20,760 |
) |
(1,709 |
) |
||
|
Increase in other assets and liabilities, net |
|
(18,086 |
) |
(12,929 |
) |
||
|
Net cash used in investing activities |
|
(61,427 |
) |
(66,657 |
) |
||
|
Cash flows from financing activities: |
|
|
|
|
|
||
|
Net payments on long-term debt |
|
(4,747 |
) |
(1,529 |
) |
||
|
Proceeds from the issuance of common stock |
|
1,761 |
|
6,226 |
|
||
|
Preferred stock cash dividends |
|
— |
|
(4,721 |
) |
||
|
Net cash used in financing activities |
|
(2,986 |
) |
(24 |
) |
||
|
Effect of exchange rate changes on cash and cash equivalents |
|
348 |
|
1,290 |
|
||
|
Increase in cash and cash equivalents |
|
2,696 |
|
17,256 |
|
||
|
Cash and cash equivalents, beginning of period |
|
34,929 |
|
79,373 |
|
||
|
Cash and cash equivalents, end of period |
|
$ |
37,625 |
|
96,629 |
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
||
|
Cash paid during the period for: |
|
|
|
|
|
||
|
Interest |
|
$ |
19,581 |
|
24,400 |
|
|
|
Income taxes, net of refunds |
|
$ |
4,077 |
|
20,193 |
|
|
|
Non-cash financing activity during the period: |
|
|
|
|
|
||
|
Convertible preferred stock paid-in-kind dividends |
|
$ |
5,684 |
|
— |
|
|
|
Financing activities in connection with the early extinguishment of debt: |
|
|
|
|
|
||
|
Write-off of deferred financing fees |
|
$ |
56 |
|
— |
|
|
|
Cash payment of call premiums and related fees |
|
$ |
237 |
|
— |
|
|
See accompanying notes to consolidated financial statements.
6
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share amounts)
Notes to Consolidated Financial Statements
(1) Consolidated Financial Statements
Basis of Presentation
The consolidated balance sheet as of September 30, 2004, the consolidated statements of income for the three and nine months ended September 30, 2003 and 2004, and the consolidated condensed statements of cash flows for the nine months then ended have been prepared by the Company without audit. In the opinion of management, all adjustments necessary to present fairly the consolidated financial position of the Company at September 30, 2004 and the results of its operations for the three and nine months ended September 30, 2003 and 2004 and its cash flows for the nine months ended September 30, 2003 and 2004 have been made.
Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2003 Annual Report on Form 10-K. The results of operations for the periods ended September 30, 2004 are not necessarily indicative of the operating results for the full year.
Certain reclassifications have been made to the prior year’s consolidated financial statements to conform to the current presentation.
The following represents a reconciliation of the numerator and denominator used in computing basic and diluted net income per share available to common stockholders for the three and nine months ended September 30, 2003 and 2004:
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|||||
|
|
|
2003 |
|
2004 |
|
2003 |
|
2004 |
|
|
|
Income (numerator) |
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders (basic) |
|
$ |
11,295 |
|
20,704 |
|
31,444 |
|
56,669 |
|
|
Add back preferred stock dividend |
|
1,942 |
|
757 |
|
5,684 |
|
4,721 |
|
|
|
Income before preferred dividend available to common stockholders (diluted) |
|
$ |
13,237 |
|
21,461 |
|
37,128 |
|
61,390 |
|
|
Shares (denominator) |
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding |
|
60,123 |
|
78,661 |
|
59,758 |
|
67,958 |
|
|
|
Effect of dilutive securities-stock options, warrants, convertible preferred shares and deferred shares |
|
29,073 |
|
12,116 |
|
27,399 |
|
22,553 |
|
|
|
Diluted weighted average common shares outstanding |
|
89,196 |
|
90,777 |
|
87,157 |
|
90,511 |
|
|
|
Basic and diluted per share amounts |
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share available to common stockholders |
|
$ |
0.19 |
|
0.26 |
|
0.53 |
|
0.83 |
|
|
Diluted net income per share available to common stockholders |
|
$ |
0.15 |
|
0.24 |
|
0.43 |
|
0.68 |
|
7
During the periods presented, the Company had outstanding shares of Series A Convertible Preferred Stock, Series B Preferred Stock and warrants to purchase shares of Class A Common Stock which were converted or exercised during the quarter ended September 30, 2004. The holders of such securities received an aggregate 24,035 shares of Class A Common Stock upon conversion or exercise of the securities. Such shares have been previously reflected in our reported diluted net income per share and similar information. At September 30, 2004 the Company has outstanding stock options and deferred shares known as Performance Accelerated Restricted Stock which could potentially dilute basic earnings per share in the future. (See Notes 12 and 13 to the Consolidated Financial Statements for the year ended December 31, 2003 in the Company’s 2003 Annual Report on Form 10-K.)
Stock-Based Compensation
The Company has chosen to continue to account for stock-based compensation using the intrinsic-value method prescribed by Accounting Principles Board Opinion No. 25. Accordingly, no stock compensation expense has been recognized for a substantial majority of its stock-based compensation plans. Had the Company elected to recognize compensation cost based on the fair value of the stock options at the date of grant under SFAS 123, as amended by SFAS 148, such costs would have been recognized ratably over the vesting period of the underlying instruments and the Company’s net income and net income per share would have changed to the pro forma amounts indicated in the table below:
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|||||
|
|
|
2003 |
|
2004 |
|
2003 |
|
2004 |
|
|
|
Net income available to common stockholders as reported |
|
$ |
11,295 |
|
20,704 |
|
31,444 |
|
56,669 |
|
|
Add back preferred stock dividend |
|
1,942 |
|
757 |
|
5,684 |
|
4,721 |
|
|
|
Add: Stock-based compensation expense included in reported net income, net of related tax effects |
|
— |
|
46 |
|
— |
|
140 |
|
|
|
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects |
|
(906 |
) |
(1,287 |
) |
(2,832 |
) |
(3,981 |
) |
|
|
Pro forma net income available to common stockholders |
|
$ |
12,331 |
|
20,220 |
|
34,296 |
|
57,549 |
|
|
Net income available to common stockholders per basic share: |
|
|
|
|
|
|
|
|
|
|
|
As reported |
|
$ |
0.19 |
|
0.26 |
|
0.53 |
|
0.83 |
|
|
Pro forma |
|
$ |
0.17 |
|
0.25 |
|
0.48 |
|
0.79 |
|
|
Net income available to common stockholders per diluted share: |
|
|
|
|
|
|
|
|
|
|
|
As reported |
|
$ |
0.15 |
|
0.24 |
|
0.43 |
|
0.68 |
|
|
Pro forma |
|
$ |
0.14 |
|
0.23 |
|
0.40 |
|
0.65 |
|
8
(2) Acquisitions
On November 6, 2003, the Company acquired IGT OnLine Entertainment Systems, Inc. from International Game Technology for $143,000 in cash plus expenses and a $10,244 working capital adjustment payment. Upon consummation of the acquisition, the Company changed the name of IGT OnLine Entertainment Systems, Inc. to Scientific Games Online Entertainment Systems, Inc (“OES”). The results of OES have been included in the Company’s results of operations from the date of acquisition. OES had annual revenues of approximately $148,818 during its most recent fiscal year ended September 27, 2003 which were reported in the Company’s Form 8-K filed on February 2, 2004.
The acquisition of OES strengthens the Company’s presence in the lottery industry, expands the Company’s geographic presence, broadens its lottery product offerings and accelerates its entrance into the video lottery systems business. As a result of the acquisition, the Company has contracts to operate online lottery systems in 16 states and supports systems that OES delivered to customers in Korea, Norway, Switzerland and Shanghai. The acquisition also included OES’s Advanced Gaming System (AGS) video system contracts in six jurisdictions throughout the world, certain intellectual property and an exclusive license to specific IGT slot brands for both instant and online games. The acquired assets and liabilities were recorded at their preliminarily estimated fair value at the date of acquisition. The excess of the purchase price over the fair values of the net assets acquired was preliminarily estimated at $96,473, subject to finalization. Goodwill from the OES acquisition will be deductible for tax purposes.
The following table presents unaudited pro forma results of operations for the three and nine months ended September 30, 2003 as if the acquisition of OES had occurred at the beginning of the periods presented, rather than on the acquisition date of November 6, 2003. These pro forma results have been prepared for comparative purposes and do not purport to be indicative of what would have occurred had the acquisition been consummated on January 1, 2003, or the results that may occur in the future.
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
|
|
|
(unaudited) |
|
(unaudited) |
|
|
|
Operating revenues |
|
$ |
169,382 |
|
495,760 |
|
|
Operating income |
|
37,108 |
|
98,437 |
|
|
|
Income before income tax expense |
|
29,748 |
|
74,813 |
|
|
|
Net income |
|
19,103 |
|
47,773 |
|
|
|
Convertible preferred stock dividend |
|
1,942 |
|
5,684 |
|
|
|
Net income available to common stockholders |
|
$ |
17,161 |
|
42,089 |
|
|
Basic net income per share available to common stockholders |
|
$ |
0.29 |
|
0.70 |
|
|
Diluted net income per share available to common stockholders |
|
$ |
0.21 |
|
0.55 |
|
9
(3) Business Segments
The following tables represent revenues, profits, depreciation, amortization, and capital expenditures for the three and nine months ended September 30, 2003 and 2004, by business segment. Corporate expenses, interest expense and other (income) deductions are not allocated to business segments.
|
|
|
Three Months Ended September 30, 2003 |
|
||||||||||
|
|
|
Lottery |
|
Pari-Mutuel |
|
Venue |
|
Telecom- |
|
Totals |
|
||
|
Service revenues |
|
$ |
72,578 |
|
21,340 |
|
16,432 |
|
— |
|
110,350 |
|
|
|
Sales revenues |
|
8,506 |
|
1,465 |
|
— |
|
11,742 |
|
21,713 |
|
||
|
Total revenues |
|
81,084 |
|
22,805 |
|
16,432 |
|
11,742 |
|
132,063 |
|
||
|
Cost of service |
|
36,647 |
|
11,728 |
|
11,799 |
|
— |
|
60,174 |
|
||
|
Cost of sales |
|
6,413 |
|
766 |
|
— |
|
8,050 |
|
15,229 |
|
||
|
Amortization of service contract software |
|
743 |
|
582 |
|
— |
|
— |
|
1,325 |
|
||
|
Total operating expense |
|
43,803 |
|
13,076 |
|
11,799 |
|
8,050 |
|
76,728 |
|
||
|
Gross profit |
|
37,281 |
|
9,729 |
|
4,633 |
|
3,692 |
|
55,335 |
|
||
|
Selling, general and administrative expenses |
|
8,164 |
|
3,363 |
|
877 |
|
1,310 |
|
13,714 |
|
||
|
Depreciation and amortization |
|
5,770 |
|
2,776 |
|
501 |
|
645 |
|
9,692 |
|
||
|
Segment operating income |
|
$ |
23,347 |
|
3,590 |
|
3,255 |
|
1,737 |
|
31,929 |
|
|
|
Unallocated corporate expense |
|
|
|
|
|
|
|
|
|
5,201 |
|
||
|
Consolidated operating income |
|
|
|
|
|
|
|
|
|
$ |
26,728 |
|
|
|
Capital and wagering systems expenditures |
|
$ |
10,504 |
|
1,599 |
|
86 |
|
93 |
|
12,282 |
|
|
10
|
|
|
Three Months Ended September 30, 2004 |
|
||||||||||
|
|
|
Lottery |
|
Pari-Mutuel |
|
Venue |
|
Telecom- |
|
Totals |
|
||
|
Service revenues |
|
$ |
116,477 |
|
20,596 |
|
15,563 |
|
— |
|
152,636 |
|
|
|
Sales revenues |
|
9,042 |
|
381 |
|
— |
|
17,250 |
|
26,673 |
|
||
|
Total revenues |
|
125,519 |
|
20,977 |
|
15,563 |
|
17,250 |
|
179,309 |
|
||
|
Cost of service |
|
61,285 |
|
11,459 |
|
11,295 |
|
— |
|
84,039 |
|
||
|
Cost of sales |
|
5,264 |
|
253 |
|
— |
|
12,933 |
|
18,450 |
|
||
|
Amortization of service contract software |
|
866 |
|
(313 |
) |
— |
|
— |
|
553 |
|
||
|
Total operating expenses |
|
67,415 |
|
11,399 |
|
11,295 |
|
12,933 |
|
103,042 |
|
||
|
Gross profit |
|
58,104 |
|
9,578 |
|
4,268 |
|
4,317 |
|
76,267 |
|
||
|
Selling, general and administrative expenses |
|
12,716 |
|
1,993 |
|
774 |
|
1,489 |
|
16,972 |
|
||
|
Depreciation and amortization |
|
9,598 |
|
3,284 |
|
524 |
|
909 |
|
14,315 |
|
||
|
Segment operating income |
|
$ |
35,790 |
|
4,301 |
|
2,970 |
|
1,919 |
|
44,980 |
|
|
|
Unallocated corporate expense |
|
|
|
|
|
|
|
|
|
6,514 |
|
||
|
Consolidated operating income |
|
|
|
|
|
|
|
|
|
$ |
38,466 |
|
|
|
Capital and wagering systems expenditures |
|
$ |
17,442 |
|
2,324 |
|
300 |
|
238 |
|
20,304 |
|
|
|
|
|
Nine Months Ended September 30, 2003 |
|
||||||||||
|
|
|
Lottery Group |
|
Pari-Mutuel Group |
|
Venue Management Group |
|
Telecom- munications Products Group |
|
Totals |
|
||
|
Service revenues |
|
$ |
216,072 |
|
61,045 |
|
48,630 |
|
— |
|
325,747 |
|
|
|
Sales revenues |
|
20,064 |
|
4,281 |
|
— |
|
34,038 |
|
58,383 |
|
||
|
Total revenues |
|
236,136 |
|
65,326 |
|
48,630 |
|
34,038 |
|
384,130 |
|
||
|
Cost of service |
|
109,948 |
|
33,726 |
|
34,014 |
|
— |
|
177,688 |
|
||
|
Cost of sales |
|
14,731 |
|
2,488 |
|
— |
|
22,948 |
|
40,167 |
|
||
|
Amortization of service contract software |
|
2,153 |
|
1,783 |
|
— |
|
— |
|
3,936 |
|
||
|
Total operating expense |
|
126,832 |
|
37,997 |
|
34,014 |
|
22,948 |
|
221,791 |
|
||
|
Gross profit |
|
109,304 |
|
27,329 |
|
14,616 |
|
11,090 |
|
162,339 |
|
||
|
Selling, general and administrative expenses |
|
26,470 |
|
8,733 |
|
2,626 |
|
3,701 |
|
41,530 |
|
||
|
Depreciation and amortization |
|
17,176 |
|
8,338 |
|
1,518 |
|
1,923 |
|
28,955 |
|
||
|
Segment operating income |
|
$ |
65,658 |
|
10,258 |
|
10,472 |
|
5,466 |
|
91,854 |
|
|
|
Unallocated corporate expense |
|
|
|
|
|
|
|
|
|
15,461 |
|
||
|
Consolidated operating income |
|
|
|
|
|
|
|
|
|
$ |
76,393 |
|
|
|
Capital and wagering systems expenditures |
|
$ |
16,272 |
|
4,534 |
|
696 |
|
1,079 |
|
22,581 |
|
|
11
|
|
|
Nine Months Ended September 30, 2004 |
|
||||||||||
|
|
|
Lottery Group |
|
Pari- Mutuel Group |
|
Venue Management Group |
|
Telecom- munications Products Group |
|
Totals |
|
||
|
Service revenues |
|
$ |
333,511 |
|
60,946 |
|
47,382 |
|
— |
|
441,839 |
|
|
|
Sales revenues |
|
54,404 |
|
2,848 |
|
— |
|
43,795 |
|
101,047 |
|
||
|
Total revenues |
|
387,915 |
|
63,794 |
|
47,382 |
|
43,795 |
|
542,886 |
|
||
|
Cost of service |
|
171,040 |
|
32,324 |
|
34,204 |
|
— |
|
237,568 |
|
||
|
Cost of sales |
|
35,309 |
|
1,686 |
|
— |
|
32,866 |
|
69,861 |
|
||
|
Amortization of service contract software |
|
2,512 |
|
1,072 |
|
— |
|
— |
|
3,584 |
|
||
|
Total operating expenses |
|
208,861 |
|
35,082 |
|
34,204 |
|
32,866 |
|
311,013 |
|
||
|
Gross profit |
|
179,054 |
|
28,712 |
|
13,178 |
|
10,929 |
|
231,873 |
|
||
|
Selling, general and administrative expenses |
|
45,443 |
|
5,801 |
|
2,972 |
|
4,406 |
|
58,622 |
|
||
|
Depreciation and amortization |
|
28,998 |
|
8,593 |
|
1,521 |
|
2,347 |
|
41,459 |
|
||
|
Segment operating income |
|
$ |
104,613 |
|
14,318 |
|
8,685 |
|
4,176 |
|
131,792 |
|
|
|
Unallocated corporate expense |
|
|
|
|
|
|
|
|
|
19,633 |
|
||
|
Consolidated operating income |
|
|
|
|
|
|
|
|
|
$ |
112,159 |
|
|
|
Capital and wagering systems expenditures |
|
$ |
41,882 |
|
8,631 |
|
962 |
|
544 |
|
52,019 |
|
|
The following table provides a reconciliation of consolidated operating income to the consolidated income before income tax expense for each period:
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|||||
|
|
|
2003 |
|
2004 |
|
2003 |
|
2004 |
|
|
|
Reportable consolidated operating income |
|
$ |
26,728 |
|
38,466 |
|
76,393 |
|
112,159 |
|
|
Interest expense |
|
6,171 |
|
7,692 |
|
18,575 |
|
22,889 |
|
|
|
Other income |
|
(199 |
) |
(313 |
) |
(231 |
) |
(89 |
) |
|
|
Income before income tax expense |
|
$ |
20,756 |
|
31,087 |
|
58,049 |
|
89,359 |
|
(4) Income Tax Expense
The effective income tax rates for the three and nine months ended September 30, 2004 of 31.0% and 31.3% respectively, differed from the federal statutory rate of 35% due primarily to benefits from the realization of foreign tax credits and the implementation of the extra-territorial income exclusion regime. The effective income tax rate for the three and nine months ended September 30, 2003 was approximately 36%, which differed from the federal statutory rate of 35% due primarily to foreign and state income taxes.
12
(5) Comprehensive Income
The following presents a reconciliation of net income to comprehensive income for the three and nine month periods ended September 30, 2003 and 2004:
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|||||
|
|
|
2003 |
|
2004 |
|
2003 |
|
2004 |
|
|
|
Net income |
|
$ |
13,237 |
|
21,461 |
|
37,128 |
|
61,390 |
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation |
|
(127 |
) |
129 |
|
2,181 |
|
896 |
|
|
|
Unrealized gain on investments |
|
4 |
|
407 |
|
880 |
|
1,134 |
|
|
|
Unrealized gain (loss) on Canadian dollar hedges |
|
(101 |
) |
— |
|
(3,907 |
) |
1,107 |
|
|
|
Other comprehensive income (loss) |
|
(224 |
) |
536 |
|
(846 |
) |
3,137 |
|
|
|
Comprehensive income |
|
$ |
13,013 |
|
21,997 |
|
36,282 |
|
64,527 |
|
(6) Inventories
Inventories consist of the following:
|
|
|
December 31, |
|
September 30, |
|
|
|
Parts and work-in-process |
|
$ |
17,990 |
|
20,631 |
|
|
Finished goods |
|
8,906 |
|
11,760 |
|
|
|
|
|
$ |
26,896 |
|
32,391 |
|
Parts and work-in-process include costs for equipment expected to be sold. Costs incurred for equipment associated with specific wagering system service contracts not yet placed in service are classified as construction in progress in property and equipment.
(7) Accrued Liabilities
Accrued liabilities consist of the following:
|
|
|
December 31, |
|
September 30, |
|
|
|
Compensation and benefits |
|
$ |
30,364 |
|
27,012 |
|
|
Accrued acquisition costs |
|
11,037 |
|
8,578 |
|
|
|
Accrued contract costs |
|
19,985 |
|
10,596 |
|
|
|
Deferred revenue |
|
7,720 |
|
5,550 |
|
|
|
Other |
|
48,387 |
|
41,589 |
|
|
|
|
|
$ |
117,493 |
|
93,325 |
|
(8) Debt
At September 30, 2004, the Company had approximately $27,351 available for borrowing under the Company’s revolving credit facility, which was entered into on November 6, 2003 as part of the Company’s senior secured credit facility (as amended and restated, the “2003 Facility”). There were no borrowings outstanding under the revolving credit facility, but approximately $47,649 in letters of credit were issued and outstanding at September 30, 2004. At December 31, 2003, the Company’s available borrowing capacity under the revolving credit facility was $27,146. At September 30, 2004, there was $459,354 in outstanding Term Loans under the 2003 Facility.
13
The Company obtained two amendments to the 2003 Facility in the second quarter of 2004. The first amendment gave the Company the ability to incur up to $300,000 of new convertible indebtedness, provided such indebtedness was subordinated to the 2003 Facility and provided that the proceeds of such convertible subordinated indebtedness were used to reduce outstanding Term C Loans. The primary purpose of the second amendment (the “Second Amendment”) was to support the Company’s reorganization of its international operations. The Second Amendment permits the transfer of ownership or disposition of certain assets and subsidiaries of the Company to other subsidiaries of the Company which would otherwise have been limited by the credit agreement governing the 2003 Facility. The Second Amendment made certain other changes to the 2003 Facility, including a reduction to the interest rate charged on Term C Loans by converting the $460,511 outstanding principal balance of Term C Loans into new term loans (the “Term D Loans”) effective July 2, 2004. The Term D Loans contain the same terms and conditions as the Term C Loans except for a 0.25% reduction in the Applicable Margins and the addition of a pricing grid that provides for a further 0.25% rate reduction should the Consolidated Senior Debt Ratio be less than 1.75 (as each term is defined in the Amended Credit Agreement).
At September 30, 2004, $65,584 of the Company’s 12 ½% senior subordinated notes (the “Notes”) was outstanding.
(9) Goodwill and Intangible Assets
The following disclosure presents certain information regarding the Company’s acquired intangible assets as of December 31, 2003 and September 30, 2004. Amortizable intangible assets are being amortized over their estimated useful lives, as indicated below, with no estimated residual values.
|
Intangible Assets |
|
Weighted Average Amortization Period |
|
Gross Carrying Amount |
|
Accumulated Amortization |
|
Net Balance |
|
||
|
Balance at December 31, 2003 |
|
|
|
|
|
|
|
|
|
||
|
Amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
||
|
Patents |
|
15 |
|
$ |
3,139 |
|
291 |
|
2,848 |
|
|
|
Customer lists |
|
14 |
|
15,375 |
|
5,984 |
|
9,391 |
|
||
|
Customer service contracts |
|
15 |
|
3,781 |
|
1,280 |
|
2,501 |
|
||
|
Licenses |
|
1-15 |
|
3,928 |
|
1,136 |
|
2,792 |
|
||
|
Lottery contracts |
|
1-7.5 |
|
31,000 |
|
1,186 |
|
29,814 |
|
||
|
|
|
|
|
57,223 |
|
9,877 |
|
47,346 |
|
||
|
Non-amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
||
|
Tradename |
|
|
|
32,200 |
|
2,118 |
|
30,082 |
|
||
|
Connecticut off-track betting system operating right |
|
|
|
22,339 |
|
8,319 |
|
14,020 |
|
||
|
|
|
|
|
54,539 |
|
10,437 |
|
44,102 |
|
||
|
Total intangible assets |
|
|
|
$ |
111,762 |
|
20,314 |
|
91,448 |
|
|
|
Balance at September 30, 2004 |
|
|
|
|
|
|
|
|
|
||
|
Amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
||
|
Patents |
|
15 |
|
$ |
3,807 |
|
444 |
|
3,363 |
|
|
|
Customer lists |
|
14 |
|
15,375 |
|
7,347 |
|
8,028 |
|
||
|
Customer service contracts |
|
15 |
|
3,768 |
|
1,464 |
|
2,304 |
|
||
|
Licenses |
|
1-15 |
|
6,214 |
|
2,633 |
|
3,581 |
|
||
|
Lottery contracts |
|
1-7.5 |
|
31,802 |
|
6,387 |
|
25,415 |
|
||
|
|
|
|
|
60,966 |
|
18,275 |
|
42,691 |
|
||
|
Non-amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
||
|
Tradename |
|
|
|
32,200 |
|
2,118 |
|
30,082 |
|
||
|
Connecticut off-track betting system operating right |
|
|
|
22,339 |
|
8,319 |
|
14,020 |
|
||
|
|
|
|
|
54,539 |
|
10,437 |
|
44,102 |
|
||
|
Total intangible assets |
|
|
|
$ |
115,505 |
|
28,712 |
|
86,793 |
|
|
The aggregate intangible amortization expense for the nine month periods ended September 30, 2003 and 2004 was approximately $2,429 and $8,398, respectively.
14
The table below reconciles the change in the carrying amount of goodwill, by reporting unit, which is the same as business segment, for the period from January 1, 2004 to September 30, 2004. In 2004, the Company recorded (a) a $1,190 increase in goodwill in connection with an earnout payment pursuant to the Serigrafica Chilena S.A. (“SERCHI”) purchase agreement and (b) a $5,759 decrease in the OES goodwill which is primarily attributable to a contract termination payment received by the Company from a third party.
|
Goodwill |
|
Lottery Group |
|
Pari-mutuel Group |
|
Venue Management Group |
|
Telecom-munications Products Group |
|
Totals |
|
|
|
Balance at December 31, 2003 |
|
$ |
307,868 |
|
487 |
|
— |
|
— |
|
308,355 |
|
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
SERCHI earnout payment |
|
1,190 |
|
— |
|
— |
|
— |
|
1,190 |
|
|
|
Adjustments to OES goodwill |
|
(5,759 |
) |
— |
|
— |
|
— |
|
(5,759 |
) |
|
|
Balance at September 30, 2004 |
|
$ |
303,299 |
|
487 |
|
— |
|
— |
|
303,786 |
|
(10) Pension Plans
The Company has two funded defined benefit pension plans. It has a defined benefit plan for its U.S. based union employees. Retirement benefits under this plan are based upon the number of years of credited service up to a maximum of 30 years for the majority of the employees. It also has a defined benefit plan for U.K. based employees. Retirement benefits under the U.K. plan are based on an employee’s average compensation over the two years preceding retirement. The Company’s policy is to fund the minimum contribution permissible by the respective regulatory authorities.
In connection with its U.S. based collective bargaining agreements, the Company participates with other companies in a defined benefit pension plan covering union employees. The Company expects to make payments to the multi-employer plan of approximately $250 during the year ending December 31, 2004.
The Company has a 401(k) plan covering all U.S. based employees who are not covered by a collective bargaining agreement. Company contributions to the plan are at the discretion of the Company’s Board of Directors. The Company has a 401(k) plan for all union employees which does not provide for Company contributions.
The Company also has an unfunded, nonqualified Supplemental Executive Retirement Plan (the “SERP”), which is intended to provide supplemental retirement benefits for certain senior executives of the Company. The SERP provides for retirement benefits according to a formula based on each participant’s compensation and years of service with the Company.
15
The following table sets forth the combined amount of net periodic benefit cost recognized for the three and nine month periods ended September 30, 2003 and 2004:
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|||||
|
|
|
2003 |
|
2004 |
|
2003 |
|
2004 |
|
|
|
Components of net periodic pension benefit cost: |
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
569 |
|
676 |
|
1,707 |
|
2,377 |
|
|
Interest cost |
|
512 |
|
641 |
|
1,536 |
|
1,923 |
|
|
|
Expected return on plan assets |
|
(370 |
) |
(448 |
) |
(1,111 |
) |
(1,344 |
) |
|
|
Actuarial loss |
|
185 |
|
295 |
|
554 |
|
885 |
|
|
|
Net amortization and deferral |
|
13 |
|
13 |
|
41 |
|
40 |
|
|
|
Amortization of prior service costs |
|
133 |
|
192 |
|
399 |
|
576 |
|
|
|
Net periodic cost |
|
$ |
1,042 |
|
1,369 |
|
3,126 |
|
4,457 |
|
(11) Financial Information for Guarantor Subsidiaries and Non-Guarantor Subsidiaries
The Company conducts substantially all of its business through its domestic and foreign subsidiaries. The Notes and the 2003 Facility are fully, unconditionally and jointly and severally guaranteed by substantially all of the Company’s wholly owned domestic subsidiaries (the “Guarantor Subsidiaries”).
Presented below is condensed consolidating financial information for (i) Scientific Games Corporation (the “Parent Company”), which includes the activities of Scientific Games Management Corporation, (ii) the Guarantor Subsidiaries and (iii) the wholly owned foreign subsidiaries and the non-wholly owned domestic and foreign subsidiaries (the “Non-Guarantor Subsidiaries”) as of December 31, 2003 and September 30, 2004 and for the three and nine months ended September 30, 2003 and 2004. The condensed consolidating financial information has been presented to show the nature of assets held, results of operations and cash flows of the Parent Company, Guarantor Subsidiaries and Non-Guarantor Subsidiaries, assuming the guarantee structure of the Notes and the 2003 Facility was in effect at the beginning of the periods presented. Separate financial statements for Guarantor Subsidiaries are not presented based on management’s determination that they would not provide additional information that is material to investors.
The condensed consolidating financial information reflects the investments of the Parent Company in the Guarantor and Non-Guarantor Subsidiaries using the equity method of accounting. Corporate interest and administrative expenses have not been allocated to the subsidiaries.
16
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
(unaudited, in thousands)
|
|
|
Parent |
|
Guarantor |
|
Non- |
|
Eliminating |
|
Consolidated |
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
67,618 |
|
(4,473 |
) |
16,228 |
|
— |
|
79,373 |
|
|
Accounts receivable, net |
|
— |
|
77,670 |
|
22,008 |
|
(39 |
) |
99,639 |
|
|
|
Inventories |
|
— |
|
19,716 |
|
7,788 |
|
(608 |
) |
26,896 |
|
|
|
Other current assets |
|
4,686 |
|
17,005 |
|
9,736 |
|
30 |
|
31,457 |
|
|
|
Property and equipment, net |
|
3,135 |
|
171,692 |
|
54,534 |
|
(631 |
) |
228,730 |
|
|
|
Investment in subsidiaries |
|
469,385 |
|
184,313 |
|
— |
|
(653,698 |
) |
— |
|
|
|
Goodwill |
|
183 |
|
304,117 |
|
4,055 |
|
— |
|
308,355 |
|
|
|
Intangible assets |
|
— |
|
86,982 |
|
4,466 |
|
— |
|
91,448 |
|
|
|
Other assets |
|
47,159 |
|
49,293 |
|
8,940 |
|
(8,301 |
) |
97,091 |
|
|
|
Total assets |
|
$ |
592,166 |
|
906,315 |
|
127,755 |
|
(663,247 |
) |
962,989 |
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current installments of long-term debt |
|
$ |
5,015 |
|
654 |
|
658 |
|
— |
|
6,327 |
|
|
Current liabilities |
|
15,615 |
|
110,158 |
|
25,370 |
|
953 |
|
152,096 |
|
|
|
Long-term debt, excluding current installments |
|
525,664 |
|
— |
|
172 |
|
— |
|
525,836 |
|
|
|
Other non-current liabilities |
|
(3,844 |
) |
31,633 |
|
13,689 |
|
100 |
|
41,578 |
|
|
|
Intercompany balances |
|
(203,592 |
) |
189,865 |
|
15,524 |
|
(1,797 |
) |
— |
|
|
|
Stockholders’ equity |
|
253,308 |
|
574,005 |
|
72,342 |
|
(662,503 |
) |
237,152 |
|
|
|
Total liabilities and stockholders’ equity |
|
$ |
592,166 |
|
906,315 |
|
127,755 |
|
(663,247 |
) |
962,989 |
|
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
(unaudited, in thousands)
|
|
|
Parent Company |
|
Guarantor Subsidiaries |
|
Non- Guarantor Subsidiaries |
|
Eliminating Entries |
|
Consolidated |
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
68,702 |
|
4,003 |
|
23,924 |
|
— |
|
96,629 |
|
|
Accounts receivable, net |
|
— |
|
73,476 |
|
27,097 |
|
(39 |
) |
100,534 |
|
|
|
Inventories |
|
— |
|
23,193 |
|
9,806 |
|
(608 |
) |
32,391 |
|
|
|
Other current assets |
|
4,427 |
|
16,960 |
|
9,718 |
|
30 |
|
31,135 |
|
|
|
Property and equipment, net |
|
2,852 |
|
188,128 |
|
53,883 |
|
(631 |
) |
244,232 |
|
|
|
Investment in subsidiaries |
|
590,847 |
|
186,022 |
|
— |
|
(776,869 |
) |
— |
|
|
|
Goodwill |
|
183 |
|
298,358 |
|
5,245 |
|
— |
|
303,786 |
|
|
|
Intangible assets |
|
— |
|
83,553 |
|
3,240 |
|
— |
|
86,793 |
|
|
|
Other assets |
|
41,051 |
|
58,012 |
|
12,771 |
|
(8,243 |
) |
103,591 |
|
|
|
Total assets |
|
$ |
708,062 |
|
931,705 |
|
145,684 |
|
(786,360 |
) |
999,091 |
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current installments of long-term debt |
|
$ |
4,903 |
|
12 |
|
2,095 |
|
— |
|
7,010 |
|
|
Current liabilities |
|
8,606 |
|
84,176 |
|
28,437 |
|
1,231 |
|
122,450 |
|
|
|
Long-term debt, excluding current installments |
|
522,000 |
|
— |
|
1,621 |
|
— |
|
523,621 |
|
|
|
Other non-current liabilities |
|
(2,787 |
) |
30,772 |
|
14,670 |
|
36 |
|
42,691 |
|
|
|
Intercompany balances |
|
(144,135 |
) |
127,497 |
|
18,838 |
|
(2,200 |
) |
— |
|
|
|
Stockholders’ equity |
|
319,475 |
|
689,248 |
|
80,023 |
|
(785,427 |
) |
303,319 |
|
|
|
Total liabilities and stockholders’ equity |
|
$ |
708,062 |
|
931,705 |
|
145,684 |
|
(786,360 |
) |
999,091 |
|
17
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
Three Months Ended September 30, 2003
(unaudited, in thousands)
|
|
|
Parent |
|
Guarantor |
|
Non- |
|
Eliminating |
|
Consolidated |
|
|
|
Operating revenues |
|
$ |
— |
|
99,074 |
|
34,369 |
|
(1,380 |
) |
132,063 |
|
|
Operating expenses |
|
— |
|
53,465 |
|
23,329 |
|
(1,391 |
) |
75,403 |
|
|
|
Amortization of service contract software |
|
— |
|
1,226 |
|
99 |
|
— |
|
1,325 |
|
|
|
Gross profit |
|
— |
|
44,383 |
|
10,941 |
|
11 |
|
55,335 |
|
|
|
Selling, general and administrative expenses |
|
5,177 |
|
10,291 |
|
3,276 |
|
(3 |
) |
18,741 |
|
|
|
Depreciation and amortization |
|
174 |
|
7,517 |
|
2,175 |
|
— |
|
9,866 |
|
|
|
Operating income (loss) |
|
(5,351 |
) |
26,575 |
|
5,490 |
|
14 |
|
26,728 |
|
|
|
Interest expense |
|
5,866 |
|
233 |
|
962 |
|
(890 |
) |
6,171 |
|
|
|
Other (income) expense |
|
(197 |
) |
(1,439 |
) |
555 |
|
882 |
|
(199 |
) |
|
|
Income (loss) before equity in income of subsidiaries, and income taxes |
|
(11,020 |
) |
27,781 |
|
3,973 |
|
22 |
|
20,756 |
|
|
|
Equity in income of subsidiaries |
|
30,708 |
|
— |
|
— |
|
(30,708 |
) |
— |
|
|
|
Income tax expense |
|
6,451 |
|
114 |
|
954 |
|
— |
|
7,519 |
|
|
|
Net income |
|
$ |
13,237 |
|
27,667 |
|
3,019 |
|
(30,686 |
) |
13,237 |
|
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED STATEMENT OF INCOME
(unaudited, in thousands)
|
|
|
Parent |
|
Guarantor |
|
Non- |
|
Eliminating |
|
Consolidated |
|
||
|
Operating revenues |
|
$ |
— |
|
137,410 |
|
45,312 |
|
(3,413 |
) |
179,309 |
|
|
|
Operating expenses |
|
— |
|
74,813 |
|
31,106 |
|
(3,430 |
) |
102,489 |
|
||
|
Amortization of service contract software |
|
— |
|
478 |
|
75 |
|
— |
|
553 |
|
||
|
Gross profit |
|
— |
|
62,119 |
|
14,131 |
|
17 |
|
76,267 |
|
||
|
Selling, general and administrative expenses |
|
6,301 |
|
13,040 |
|
3,935 |
|
(3 |
) |
23,273 |
|
||
|
Depreciation and amortization |
|
213 |
|
10,900 |
|
3,415 |
|
— |
|
14,528 |
|
||
|
Operating income (loss) |
|
(6,514 |
) |
38,179 |
|
6,781 |
|
20 |
|
38,466 |
|
||
|
Interest expense |
|
7,318 |
|
318 |
|
1,332 |
|
(1,276 |
) |
7,692 |
|
||
|
Other (income) expense |
|
(229 |
) |
(1,526 |
) |
357 |
|
1,085 |
|
(313 |
) |
||
|
Income (loss) before equity in income of subsidiaries, and income taxes |
|
(13,603 |
) |
39,387 |
|
5,092 |
|
211 |
|
31,087 |
|
||
|
Equity in income of subsidiaries |
|
41,689 |
|
— |
|
— |
|
(41,689 |
) |
— |
|
||
|
Income tax expense |
|
6,625 |
|
1,251 |
|
1,750 |
|
— |
|
9,626 |
|
||
|
Net income |
|
$ |
21,461 |
|
38,136 |
|
3,342 |
|
(41,478 |
) |
21,461 |
|
|
18
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
Nine Months Ended September 30, 2003
(unaudited, in thousands)
|
|
|
Parent |
|
Guarantor Subsidiaries |
|
Non- Guarantor Subsidiaries |
|
Eliminating Entries |
|
Consolidated |
|
|
|
Operating revenues |
|
$ |
— |
|
295,039 |
|
94,595 |
|
(5,504 |
) |
384,130 |
|
|
Operating expenses |
|
— |
|
159,665 |
|
63,651 |
|
(5,461 |
) |
217,855 |
|
|
|
Amortization of service contract software |
|
— |
|
3,638 |
|
298 |
|
— |
|
3,936 |
|
|
|
Gross profit |
|
— |
|
131,736 |
|
30,646 |
|
(43 |
) |
162,339 |
|
|
|
Selling, general and administrative expenses |
|
15,222 |
|
31,280 |
|
9,959 |
|
(9 |
) |
56,452 |
|
|
|
Depreciation and amortization |
|
539 |
|
22,495 |
|
6,460 |
|
— |
|
29,494 |
|
|
|
Operating income (loss) |
|
(15,761 |
) |
77,961 |
|
14,227 |
|
(34 |
) |
76,393 |
|
|
|
Interest expense |
|
17,974 |
|
565 |
|
3,110 |
|
(3,074 |
) |
18,575 |
|
|
|
Other (income) expense |
|
(299 |
) |
(4,534 |
) |
1,553 |
|
3,049 |
|
(231 |
) |
|
|
Income (loss) before equity in income of subsidiaries, and income taxes |
|
(33,436 |
) |
81,930 |
|
9,564 |
|
(9 |
) |
58,049 |
|
|
|
Equity in income of subsidiaries |
|
88,742 |
|
— |
|
— |
|
(88,742 |
) |
— |
|
|
|
Income tax expense |
|
18,178 |
|
318 |
|
2,425 |
|
— |
|
20,921 |
|
|
|
Net income |
|
$ |
37,128 |
|
81,612 |
|
7,139 |
|
(88,751 |
) |
37,128 |
|
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED STATEMENT OF INCOME
(unaudited, in thousands)
|
|
|
||