Earnings Per Diluted Share Are $0.08; $0.25 Excluding Employee Termination
and Stock Compensation Expenses
NEW YORK, March 1 /PRNewswire-FirstCall/ -- SCIENTIFIC GAMES
CORPORATION (Nasdaq: SGMS) today reported fourth quarter 2006 revenues of
$232.1 million, up 14 percent from $202.9 million in the fourth quarter of
2005. Net income was $7.9 million or $0.08 per diluted share, net of $13.5
million of employee termination costs and $3.9 million of stock
compensation expenses, down from net income of $10.3 million or $0.11 per
diluted share in the fourth quarter of 2005. Non-GAAP adjusted net income
before employee termination and stock compensation expenses for the fourth
quarter of 2006 was $24.0 million or $0.25 per non-GAAP diluted share,
compared to non-GAAP adjusted net income of $25.1 million or $0.27 per
non-GAAP diluted share in the fourth quarter of 2005.
EBITDA for the fourth quarter of 2006 was $48.3 million, up 24 percent
from $38.9 million in the fourth quarter of 2005. Excluding employee
termination and stock compensation expenses, adjusted EBITDA increased 13
percent to $65.7 million for the fourth quarter of 2006, compared to
adjusted EBITDA of $58.3 million for the fourth quarter of 2005.
For 2006, revenues increased 15 percent to $897.2 million compared to
$781.7 for 2005. Net income was $66.8 million or $0.70 per diluted share,
net of $25.1 million of employee termination, asset impairment and other
costs and $17.9 million of stock compensation expenses, compared to net
income of $75.3 million or $0.81 per diluted share in 2005. Non-GAAP
adjusted net income before employee termination costs, stock compensation
expenses, asset impairment and other charges was $98.4 million or $1.05 per
non-GAAP diluted share for 2006, compared to non-GAAP adjusted net income
of $95.9 million or $1.04 per non-GAAP diluted share in 2005.
EBITDA increased 22 percent to $239.5 million for 2006, compared to
$195.7 million in 2005. Excluding employee termination costs, stock
compensation expenses, asset impairment and other charges, adjusted EBITDA
increased 23 percent to $272.7 million for 2006, compared to adjusted
EBITDA of $222.4 million in 2005.
"Printed Products service revenue grew an impressive 22 percent in the
fourth quarter," said Lorne Weil, Chairman and CEO. "As expected, after the
summer slow-down, 'same store' sales growth re-accelerated. Excluding new
contract revenue of approximately $4.2 million, 'same store' sales growth
was approximately 17 percent."
Mr. Weil continued, "Italy continues to exceed expectations, achieving
record sales every month, making Italy the strongest instant ticket market
in Europe just two and a half years after launch. One of our goals is to
bring the type of success we have generated in Italy to other international
jurisdictions. We remain optimistic about future instant ticket launches in
Mexico and Germany. We continue to make significant progress in our instant
ticket market development activities in China. We are in advanced
negotiations with various China based partners and provinces which could
lead to the sale and distribution of instant tickets in certain
jurisdictions prior to the end of 2007. We remain excited about the long
term opportunity in China and are optimistic about our ability to penetrate
that market. And domestically, we look forward to spring training and the
launch of approximately 15 Major League Baseball games during the first and
second quarters of 2007."
Printed Products sales revenue in the fourth quarter was $14.2 million,
a decrease of 24 percent from $18.7 million in the fourth quarter of 2005,
but a 34 percent improvement versus the third quarter of 2006. The decline
is primarily due to a decline in phone card sales reflecting a continuing
market driven shift to lower priced products. Printed Products sales
margins went from 30 percent in the fourth quarter of 2005 to 20 percent in
the fourth quarter of 2006 due to pricing pressure and decreased economies
of scale.
"Lottery Systems Group service revenue grew four percent during the
fourth quarter," added Weil. "Excluding EssNet service revenue of
approximately $4.9 million and the Montana contract which elapsed, 'same
store sales' were down approximately 4 percent. However we expect this
segment to improve in 2007 with the launch of our Mexican online lottery
with Televisa, improved jackpot activity, and the benefit of cost saving
initiatives."
Lottery Systems sales revenue was $8.0 million, a decrease of 40
percent from $13.3 million in the fourth quarter of 2005. This is primarily
due to the absence of a one-time sale of Instant Ticket Vending Machines
(ITVMs) to Pennsylvania that accounted for $8.3 million of revenue in the
fourth quarter of 2005, and decreased levels of sales activity due to
pending legislation in Germany.
"Diversified Gaming Group service revenue grew 70 percent, largely due
to the addition of Global Draw. Excluding $19.7 million of Global Draw
revenue, our pari-mutuel related businesses showed margin improvement
despite a 4% decline in revenue because of cost reduction initiatives. We
believe that we've given the racing industry a giant step into the future
with the introduction of the Quantum System. Both East and West Coast
facilities are now operational and we expect to eventually move all
on-track and off-track betting through the Quantum Data Centers. This is
the kind of advanced data processing the racing industry -- and its critics
-- have been calling for and Scientific Games is pleased to have brought it
to life."
Weil added, "Scientific Games underwent a company-wide restructuring
and a reduction in force during the fourth quarter. We now believe the
Company is better positioned to both service existing customers and
generate new ones. In the fourth quarter of 2006 we recorded employee
termination charges of approximately $13.5 million. However, we expect
these charges to result in an annual cost savings in excess of $20 million
going forward."
Fourth quarter business development included an extended contract
making Global Draw the exclusive supplier of gaming machines to almost
1,500 Coral betting shops in the United Kingdom. Scientific Games also
purchased Games Media Ltd., a U.K. based company developing, publishing and
selling "Amusement With Prizes" (AWP) machines, "Skill With Prizes" (SWP)
machines and related content for the U.K. public house market. The U.K.
public house market comprises approximately 60,000 pubs which have an
estimated total of 120,000 AWPs and 30,000 SWPs. It is anticipated that the
industry will undergo a digital replacement cycle of the current analog
machines starting in 2007.
Subsequent to the end of the quarter the Company signed a significant
licensing deal with Hasbro, giving us global exclusive lottery rights to
games like MONOPOLY(TM), BATTLESHIP(TM), CLUE(TM), YAHTZEE(TM), BOGGLE(TM),
and THE GAME OF LIFE(TM). The global deal has the potential to bring 20
Hasbro brands to multiple lottery platforms such as instant and pull-tab
tickets, on-line terminal generated games, mobile, Internet and interactive
television. Previously the Company only had licensing rights for U.S.
instant tickets, with a competitor having the rights to online, so the
expanded relationship bears great potential. The Company was also awarded
an 11 year racing contract with the Camarero Group of Puerto Rico, and an
extension with one of our most important customers, the Connecticut
Lottery, for a new lottery system to be launched in 2008.
Weil concluded, "We are very excited by our robust business development
pipeline and satisfied with the restructuring changes we have made. We
believe the combination should yield both revenue growth and margin
improvement in the coming quarters."
Information about the use of non-GAAP financial information is provided
under the section "Non-GAAP Disclosure" below. The non-GAAP measures
(adjusted net income, diluted adjusted net income per share, EBITDA and
adjusted EBITDA) are reconciled to the corresponding GAAP measures in the
financial schedules accompanying this release.
Stock Repurchase Program
As previously reported, on November 2, 2006, the Company's Board of
Directors approved a stock repurchase program under which the Company is
authorized to repurchase, from time to time in the open market through
December 31, 2007, shares of its outstanding common stock in an aggregate
amount up to $200 million. During the fourth quarter, the Company
repurchased 321,548 shares for a total cost of approximately $9.8 million.
The timing and amount of purchases will be determined by the Company's
management based on their evaluation of market conditions, share price and
other factors. Purchases are expected to be funded by cash flows from
operations, borrowings, or a combination thereof. The stock repurchase
program may be discontinued at any time.
Conference Call Details
We invite you to join our conference call tomorrow at 8:30 a.m.
Eastern. To access the call live via webcast please visit
http://www.scientificgames.com and click on the webcast link under the
"Investors" tab. To access the call by telephone, please dial (866)
770-7125 (US & Canada) or (617) 213-8066 (International) fifteen minutes
before the start of the call. The Conference ID# is 91891619. The call will
be archived for replay on the Company's website for 30 days.
About Scientific Games
Scientific Games Corporation is the leading integrated supplier of
instant tickets, systems and services to lotteries, a leading supplier of
fixed odds betting terminals and systems, interactive sports betting
terminals and systems, and wagering systems and services to pari-mutuel
operators. It is also a licensed pari-mutuel gaming operator in
Connecticut, Maine 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
http://www.scientificgames.com.
Company Contact:
Investor Relations
Scientific Games Corporation
212-754-2233
Forward-Looking Statements
In this press release we make "forward-looking statements" within the
meaning of the United States Private Securities Litigation Reform Act of
1995. In some cases, forward-looking statements can be identified by the
use of forward-looking terminology such as "may," "will," "estimate,"
"intend," "continue," "believe," "expect" or "anticipate," "could,"
"optimistic," "potential," "opportunity," "eventually," or the negatives
thereof, variations thereon or similar terminology.
These forward-looking statements are based upon management's current
expectations, assumptions and estimates and are not guarantees of future
results or performance. Actual outcomes may differ from those projected in
forward-looking statements due to a variety of risks and uncertainties and
other factors, including relating to the following:
* the availability and adequacy of our cash flow to satisfy our
obligations, including our debt service obligations and our need for
additional funds required to support capital improvements, development
and acquisitions;
* economic, competitive, demographic, business and other conditions in our
local, regional and international markets;
* changes or developments in the laws, regulations or taxes in the gaming,
racing and lottery industries;
* actions taken or omitted to be taken by third parties, including
customers, suppliers, competitors and shareholders, as well as
legislative, regulatory, judicial and other governmental authorities;
* changes in business strategy, capital improvements, development plans,
including those due to environmental remediation concerns, or changes in
personnel or their compensation, including federal, state and local
minimum wage requirements;
* an inability to enter into new contracts or renew existing contracts or
the early termination of our existing contracts;
* an inability to engage in or complete future acquisitions;
* the loss of any license or permit, including the failure to obtain an
unconditional renewal of a required gaming license on a timely basis;
and
* resolution of any pending or future litigation in a manner adverse to
us.
Additional information regarding risks and uncertainties and other
factors that could cause actual results to differ materially from those
contemplated in forward-looking is included from to time in the Company's
filings with the Securities and Exchange Commission, including the
Company's reports on Forms 10-K, 10-Q and 8-K. Forward-looking statements
speak only as of the date they are made, and except for our ongoing
obligations under the U.S. federal securities laws, we undertake no
obligation to publicly update any forward-looking statements whether as a
result of new information, future events or otherwise.
Convertible Debentures
During the second, third and fourth quarters of 2006, the average price
of our common stock exceeded the specified conversion price of $29.10 of
our Convertible Debentures. Because of this, an additional 262,000 shares
and 939,000 shares of common stock have been included in our weighted
average number of diluted shares for the fourth quarter and twelve months
of 2006, respectively. Although we purchased a hedge in December 2004 to
mitigate the potential economic dilution of the underlying Convertible
Debenture shares, we are precluded from reflecting this hedge in our GAAP
weighted average number of diluted shares because the effect would be
anti-dilutive. Upon conversion of the debentures, the dilutive share count
will revert to the true economic number.
Non-GAAP Disclosure
EBITDA, as included herein, represents net income plus income tax
expense, interest expense, and depreciation and amortization expenses, net
of other income. 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. In addition, EBITDA
is useful to investors in evaluating the Company's financial performance
because it is a commonly used financial analysis tool for measuring and
comparing gaming companies in several areas of liquidity, operating
performance and leverage. 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.
EBITDA, Adjusted EBITDA, non-GAAP adjusted net income and diluted
non-GAAP adjusted net income per share are non-GAAP financial measures that
are presented as supplemental disclosures and are reconciled to GAAP net
income and GAAP net income per diluted share in financial schedules
accompanying this release. In calculating the adjusted financial measures,
the Company excludes certain items in order to better facilitate an
understanding of the Company's operating performance.
The Company's management uses these adjusted financial measures in
conjunction with GAAP financial measures to monitor and evaluate the
performance of the Company's business operations; facilitate management's
internal comparisons of the Company's historical operating performance of
its business operations; facilitate management's external comparisons of
the results of its overall business to the historical operating performance
of other companies that may have different capital structures and debt
levels; review and assess the operating performance of the Company's
management team and as a measure in evaluating employee compensation and
bonuses; analyze and evaluate financial and strategic planning decisions
regarding future operating investments; and plan for and prepare future
annual operating budgets and determine appropriate levels of operating
investments.
The Company's management believes that these adjusted financial
measures are useful to investors to provide them with disclosures of the
Company's operating results on the same basis as that used by the Company's
management. The Company's management also believes that because it has
historically provided such adjusted non-GAAP financial measures in its
earnings releases, continuing to do so provides consistency in its
financial reporting and continuity to investors for comparability purposes.
Accordingly, the Company's management believes that the presentation of the
adjusted non-GAAP financial measures, when used in conjunction with GAAP
financial measures, provides both management and investors with useful
financial information that can be used in assessing the Company's financial
condition and operating performance.
The adjusted financial measures should not be considered in isolation
or as a substitute for net income or net income per diluted share prepared
in accordance with GAAP. The adjusted financial measures as defined in this
document may differ from similarly titled measures presented by other
companies. The adjusted financial measures, as well as other information in
this document should be read in conjunction with the Company's financial
statements filed with the Securities and Exchange Commission.
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended December 31, 2005 and 2006
(Unaudited, in thousands, except per share amounts)
Three Months Ended
December 31,
2005 2006
Operating revenues:
Services $166,781 209,114
Sales 36,098 22,960
202,879 232,074
Operating expenses:
Cost of services (exclusive of depreciation
and amortization) 91,793 116,339
Cost of sales (exclusive of depreciation and
amortization) 24,780 15,602
Selling, general and administrative expenses 46,902 53,313
Depreciation and amortization 18,070 26,765
Operating income 21,334 20,055
Other deductions:
Interest expense 6,665 12,922
Equity in net (income) loss of joint ventures 506 (1,445)
Other (income) loss (448) 92
6,723 11,569
Income before income tax expense 14,611 8,486
Income tax expense 4,256 599
Net income $10,355 7,887
Basic and diluted net income per share:
Basic net income $0.12 0.09
Diluted net income $0.11 0.08
Weighted average number of shares used in per
share calculations:
Basic shares 89,780 91,532
Diluted shares 92,867 94,599
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Twelve Months Ended December 31, 2005 and 2006
(Unaudited, in thousands, except per share amounts)
Twelve Months Ended
December 31,
2005 2006
Operating revenues:
Services $639,327 799,227
Sales 142,356 98,003
781,683 897,230
Operating expenses :
Cost of services (exclusive of depreciation
and amortization) 351,430 437,147
Cost of sales (exclusive of depreciation and
amortization) 100,621 72,800
Selling, general and administrative expenses 131,844 155,727
Depreciation and amortization 66,794 106,006
Operating income 130,994 125,550
Other deductions:
Interest expense 26,548 43,393
Equity in net (income) loss of joint ventures 2,064 (7,900)
Other income (1,222) (767)
27,390 34,726
Income before income tax expense 103,604 90,824
Income tax expense 28,285 24,063
Net income $75,319 66,761
Basic and diluted net income per share:
Basic net income $0.84 0.73
Diluted net income $0.81 0.70
Weighted average number of shares used in per
share calculations:
Basic shares 89,327 91,066
Diluted shares 92,484 94,979
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SELECTED CONSOLIDATED BALANCE SHEET DATA
December 31, 2005 and December 31, 2006
(Unaudited, in thousands)
December 31, December 31,
2005 2006
Assets:
Cash and cash equivalents $38,942 27,791
Other current assets 215,611 316,911
Property and equipment, net 366,219 450,660
Long-term assets 551,741 964,248
Total assets $1,172,513 1,759,610
Liabilities and Stockholders' Equity:
Current portion of long-term debt $6,055 3,148
Other current liabilities 135,307 190,875
Long-term debt, excluding current portion 574,680 913,253
Other long-term liabilities 69,638 124,256
Stockholders' equity 386,833 528,078
Total liabilities and stockholders'
equity: $1,172,513 1,759,610
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED SEGMENT OPERATING DATA
Three Months Ended December 31, 2005 and 2006
(Unaudited, in thousands)
Three Months Ended December 31, 2005
Lottery Printed Diversified
Systems Products Gaming
Group Group Group Totals
Service revenues $50,747 85,037 30,997 166,781
Sales revenues 13,250 18,696 4,152 36,098
Total revenues 63,997 103,733 35,149 202,879
Cost of services(1) 24,151 43,797 23,845 91,793
Cost of sales(1) 9,459 13,120 2,201 24,780
Selling, general and
administrative expenses 9,647 13,763 2,023 25,433
Depreciation and
amortization(2) 9,758 4,885 3,107 17,750
Segment operating income $10,982 28,168 3,973 43,123
Unallocated corporate
expense 21,789
Consolidated operating
income $21,334
Three Months Ended December 31, 2006
Lottery Printed Diversified
Systems Products Gaming
Group Group Group Totals
Service revenues $52,891 103,512 52,711 209,114
Sales revenues 7,987 14,211 762 22,960
Total revenues 60,878 117,723 53,473 232,074
Cost of services(1) 30,531 53,114 32,694 116,339
Cost of sales(1) 4,064 11,392 146 15,602
Selling, general and
administrative expenses 11,759 18,326 5,470 35,555
Depreciation and
amortization(2) 13,619 7,237 5,668 26,524
Segment operating income $905 27,654 9,495 38,054
Unallocated corporate
expense 17,999
Consolidated operating
income $20,055
(1) Exclusive of depreciation and amortization
(2) Includes amortization of service contract software
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED SEGMENT OPERATING DATA
Twelve Months Ended December 31, 2005 and 2006
(Unaudited, in thousands)
Twelve Months Ended December 31, 2005
Lottery Printed Diversified
Systems Products Gaming
Group Group Group Totals
Service revenues $175,843 331,087 132,397 639,327
Sales revenues 59,829 72,214 10,313 142,356
Total revenues 235,672 403,301 142,710 781,683
Cost of services(1) 87,290 170,097 94,043 351,430
Cost of sales(1) 41,387 52,193 7,041 100,621
Selling, general and
administrative expenses 29,684 43,969 15,528 89,181
Depreciation and
amortization(2) 33,522 18,250 13,843 65,615
Segment operating income $43,789 118,792 12,255 174,836
Unallocated corporate
expense 43,842
Consolidated operating
income $130,994
Twelve Months Ended December 31, 2006
Lottery Printed Diversified
Systems Products Gaming
Group Group Group Totals
Service revenues $213,144 388,841 197,242 799,227
Sales revenues 42,300 50,769 4,934 98,003
Total revenues 255,444 439,610 202,176 897,230
Cost of services(1) 119,835 199,006 118,306 437,147
Cost of sales(1) 28,363 40,027 4,410 72,800
Selling, general and
administrative expenses 34,571 51,425 17,615 103,611
Depreciation and
amortization(2) 48,423 25,203 31,410 105,036
Segment operating income $24,252 123,949 30,435 178,636
Unallocated corporate
expense 53,086
Consolidated operating
income $125,550
(1) Exclusive of depreciation and amortization
(2) Includes amortization of service contract software
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CALCULATION OF NON-GAAP ADJUSTED NET INCOME
(Unaudited, in thousands, except per share amounts)
Three Months Ended Twelve Months Ended
December 31, December 31,
2005 2006 2005 2006
Income before income tax expense $14,611 8,486 103,604 90,824
Add: Employee termination costs -- 13,524 -- 14,860
Add: Asset impairment charges -- -- -- 10,240
Add: Stock compensation charges -- 3,875 -- 17,910
Add: Lottery Systems Group -
legal, start-up, consulting
and severance costs 3,183 -- 3,183 --
Add: Corporate SERP termination
charges 12,363 -- 12,363 --
Add: Printed Products Group -
start-up, legal, defective
tickets and Honsel earn out
costs 3,291 -- 5,498 --
Add: Diversified Gaming Group -
market withdrawal and
restructuring costs 600 -- 6,321 --
Non-GAAP net income before income
tax expense 34,048 25,885 130,969 133,834
Non-GAAP income tax expense 8,921 1,838 35,070 35,466
Non-GAAP adjusted net income $25,127 24,047 95,899 98,368
Diluted non-GAAP net income
per share $0.27 0.25 1.04 1.05
Diluted GAAP net income per share $0.11 0.08 0.81 0.70
Weighted average number of shares
used in per share calculations 92,867 94,599 92,484 94,979
Less: Diluted shares included in
weighted average number of
shares related to potential
conversion of convertible
debt -- 262 -- 939
Non-GAAP weighted average number
of shares used in per share
calculations 92,867 94,337 92,484 94,040
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA
(Unaudited, in thousands)
Three Months Ended Twelve Months Ended
December 31, December 31,
2005 2006 2005 2006
Net income $10,355 7,887 75,319 66,761
Add: Income tax expense 4,256 599 28,285 24,063
Add: Depreciation and amortization
expense 18,070 26,765 66,794 106,006
Add: Interest expense, net of other
income or loss 6,217 13,014 25,326 42,626
EBITDA $38,898 48,265 195,724 239,456
Add: Lottery Systems Group
employee termination costs -- 2,982 -- 4,318
Add: Printed Products Group
employee termination costs -- 3,500 -- 3,500
Add: Diversified Gaming Group
employee termination costs
and asset impairment charge -- 1,599 -- 2,108
Add: Corporate employee termination
costs -- 5,443 -- 5,443
Add: Diversified Gaming Group -
market withdrawal and
restructuring costs 600 -- 5,680 --
Add: Lottery Systems Group - legal,
start-up, consulting and
severance costs 3,183 -- 3,183 --
Add: Corporate SERP termination
charges 12,363 -- 12,363 --
Add: Printed Products Group -
start-up, legal, defective
tickets and Honsel earn out
costs 3,291 -- 5,498 --
Add: Stock compensation charges -- 3,875 -- 17,910
Adjusted EBITDA $58,335 65,664 222,448 272,735
SOURCE Scientific Games
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CONTACT:
Investor Relations, +1-212-754-2233, for
Scientific Games
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