Pursuant to Rule 424(b)(3)
Under the Securities Act
of 1933, as amended
Prospectus Supplement No.6
Dated August 15, 2001
to Prospectus Dated January 2, 2001,
as supplemented by
Prospectus Supplement No. 1 Dated February 15, 2001,
Prospectus Supplement No. 2 Dated February 21, 2001,
Prospectus Supplement No. 3 Dated March 1, 2001,
Prospectus Supplement No. 4 Dated April 16, 2001
and
Prospectus Supplement No. 5 Dated May 16, 2001
Registration Number 333-51000
_______________________________________
Scientific Games Corporation
(Formerly Autotote Corporation)
_______________________________________
12 1/2% Senior Subordinated Notes Due 2010, Series B
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
{Mark One}
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File number: 0-13063
SCIENTIFIC GAMES CORPORATION
(FORMERLY AUTOTOTE CORPORATION)
(Exact name of registrant as specified in its charter)
Delaware 81-0422894
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
750 Lexington Avenue, New York, New York 10022
(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 X No __
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of August 10, 2001:
Class A Common Stock: 40,417,583
Class B Common Stock: None
Page 1 of 29
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND OTHER INFORMATION
QUARTER ENDED JUNE 30, 2001
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Balance Sheets as of December 31, 2000
and June 30, 2001 3
Statements of Operations for the Three Months Ended
June 30, 2000 and 2001 4
Statements of Operations for the Six Months Ended
June 30, 2000 and 2001 5
Statements of Cash Flows for the Six Months Ended
June 30, 2000 and 2001 6
Notes to Consolidated Financial Statements 7-18
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 19-27
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 28
Item 2. Changes in Securities and Use of Proceeds 28
Item 4. Submission of Matters to a Vote of Stockholders 28
Item 6. Exhibits and Reports on Form 8-K 28
2
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
December 31, June 30,
2000 2001
---------------- ---------------
ASSETS
Current assets:
Cash and cash equivalents.................................................. $ 6,488 8,177
Accounts receivable, net of allowance for doubtful accounts................ 56,819 53,058
Inventories................................................................ 27,608 21,471
Prepaid expenses, deposits and other current assets........................ 16,581 17,820
---------------- ---------------
Total current assets.................................................. 107,496 100,526
---------------- ---------------
Property and equipment, at cost................................................. 323,732 341,729
Less accumulated depreciation.............................................. 139,121 152,786
---------------- ---------------
Net property and equipment............................................ 184,611 188,943
---------------- ---------------
Goodwill, net................................................................... 157,591 153,144
Operating right, net............................................................ 12,681 12,181
Other intangible assets, net.................................................... 118,598 114,965
Other assets and investments.................................................... 53,964 57,944
---------------- ---------------
Total assets....................................................... $ 634,941 627,703
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt..................................... $ 6,636 7,937
Accounts payable........................................................... 27,176 25,568
Accrued liabilities........................................................ 59,142 55,757
Interest payable........................................................... 11,112 8,451
---------------- ---------------
Total current liabilities............................................. 104,066 97,713
---------------- ---------------
Deferred income taxes........................................................... 59,093 58,290
Other long-term liabilities..................................................... 9,585 12,230
Long-term debt, excluding current installments.................................. 434,044 435,514
---------------- ---------------
Total liabilities..................................................... 606,788 603,747
---------------- ---------------
Stockholders' equity:
Convertible preferred stock, par value $1.00 per share, 2,000 shares
authorized, 1,149 and 1,183 shares outstanding at December 31,
2000 and June 30, 2001, respectively................................... 1,149 1,183
Class A common stock, par value $0.01 per share, 99,300 shares authorized,
40,156 and 40,269 shares outstanding at December 31, 2000 and
June 30, 2001, respectively............................................ 373 375
Class B non-voting common stock, par value $0.01 per share, 700 shares
authorized, none outstanding............................................ -- --
Additional paid-in capital................................................. 266,917 270,633
Accumulated losses......................................................... (234,910) (238,850)
Treasury stock, at cost.................................................... (102) (105)
Accumulated other comprehensive loss....................................... (5,274) (9,280)
---------------- ---------------
Total stockholders' equity............................................ 28,153 23,956
---------------- ---------------
Total liabilities and stockholders' equity............................ $ 634,941 627,703
================ ===============
See accompanying notes to consolidated financial statements.
3
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended June 30, 2000 and 2001
(Unaudited, in thousands, except per share amounts)
2000 2001
----------------- ----------------
Operating revenues:
Services..................................................................... $ 38,885 91,640
Sales........................................................................ 14,269 20,933
------------------ ----------------
53,154 112,573
------------------ ----------------
Operating expenses (exclusive of depreciation and amortization shown below):
Services..................................................................... 25,008 57,948
Sales........................................................................ 9,567 12,014
------------------ ----------------
34,575 69,962
------------------ ----------------
Total gross profit...................................................... 18,579 42,611
Selling, general and administrative expenses...................................... 6,544 14,021
Depreciation and amortization..................................................... 5,069 13,568
------------------ ----------------
Operating income........................................................ 6,966 15,022
------------------ ----------------
Other deductions:
Interest expense............................................................. 4,388 12,708
Other income................................................................. (111) (63)
------------------ ----------------
4,277 12,645
------------------ ----------------
Income before income tax expense............................................. 2,689 2,377
Income tax expense................................................................ 405 437
------------------ ----------------
Net income................................................................... 2,284 1,940
Convertible preferred stock paid-in-kind dividend................................. -- 1,744
------------------ ----------------
Net income available to common stockholders....................................... $ 2,284 196
================== ================
Basic and diluted net income per share:
Basic net income per share................................................... $ 0.06 0.05
================== ================
Diluted net income per share................................................. $ 0.06 0.04
================== ================
Basic net income per share available to common stockholders.................. $ 0.06 --
================== ================
Diluted net income per share available to common stockholders................ $ 0.06 --
================== ================
Weighted average number of shares used in per share calculations:
Basic shares................................................................. 36,807 40,209
================== ================
Diluted shares............................................................... 41,086 44,441
================== ================
See accompanying notes to consolidated financial statements.
4
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended June 30, 2000 and 2001
(Unaudited, in thousands, except per share amounts)
2000 2001
----------------- ----------------
Operating revenues:
Services..................................................................... $ 76,544 179,680
Sales........................................................................ 22,222 45,001
------------------ ----------------
98,766 224,681
------------------ ----------------
Operating expenses (exclusive of depreciation and amortization shown below):
Services..................................................................... 49,501 116,061
Sales........................................................................ 13,460 26,721
------------------ ----------------
62,961 142,782
------------------ ----------------
Total gross profit...................................................... 35,805 81,899
Selling, general and administrative expenses...................................... 13,275 28,646
Depreciation and amortization..................................................... 10,439 27,176
------------------ ----------------
Operating income........................................................ 12,091 26,077
------------------ ----------------
Other deductions:
Interest expense............................................................. 8,641 26,288
Other (income) expense....................................................... (189) 181
------------------ ----------------
8,452 26,469
------------------ ----------------
Income (loss) before income tax expense...................................... 3,639 (392)
Income tax expense................................................................ 521 105
------------------ ----------------
Net income (loss)............................................................ 3,118 (497)
Convertible preferred stock paid-in-kind dividend................................. -- 3,443
------------------ ----------------
Net income (loss) available to common stockholders................................ $ 3,118 (3,940)
================== ================
Basic and diluted net income (loss) per share:
Basic net income (loss) per share............................................ $ 0.09 (0.01)
================== ================
Diluted net income (loss) per share.......................................... $ 0.08 (0.01)
================== ================
Basic net income (loss) per share available to common stockholders........... $ 0.09 (0.10)
================== ================
Diluted net income (loss) per share available to common stockholders......... $ 0.08 (0.10)
================== ================
Weighted average number of shares used in per share calculations:
Basic shares................................................................. 36,675 40,186
================== ================
Diluted shares............................................................... 41,560 40,186
================== ================
See accompanying notes to consolidated financial statements.
5
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2000 and 2001
(Unaudited, in thousands)
2000 2001
---------------- ---------------
Cash flows from operating activities:
Net income (loss).............................................................. $ 3,118 (497)
---------------- ---------------
Adjustments to reconcile net income (loss) to cash provided by
operating activities:
Depreciation and amortization............................................. 10,439 27,176
Changes in operating assets and liabilities............................... (2,402) (256)
Other..................................................................... 821 395
---------------- ---------------
Total adjustments.................................................... 8,858 27,315
---------------- ---------------
Net cash provided by operating activities........................................... 11,976 26,818
---------------- ---------------
Cash flows from investing activities:
Capital expenditures........................................................... (2,498) (3,616)
Wagering systems expenditures.................................................. (17,497) (18,855)
Increase in other assets and investments....................................... (4,101) (4,839)
---------------- ---------------
Net cash used in investing activities............................................... (24,096) (27,310)
---------------- ---------------
Cash flows from financing activities:
Net borrowings (repayments) under lines of credit.............................. (150) 5,900
Proceeds from issuance of long-term debt....................................... 10,952 --
Payments on long-term debt..................................................... (1,534) (2,968)
Proceeds from the issuance of common stock..................................... 1,428 121
---------------- ---------------
Net cash provided by financing activities........................................... 10,696 3,053
---------------- ---------------
Effect of exchange rate changes on cash............................................. (246) (872)
---------------- ---------------
Increase (decrease) in cash and cash equivalents.................................... (1,670) 1,689
Cash and cash equivalents, beginning of period...................................... 3,662 6,488
---------------- ---------------
Cash and cash equivalents, end of period............................................ $ 1,992 8,177
================ ===============
Supplemental disclosure of cash flow information:
Cash paid (recovered) during the period for:
Interest paid.................................................................. $ 7,984 27,809
================ ===============
Net income taxes paid (recovered).............................................. $ 455 (409)
================ ===============
Non-cash financing activity during the period:
Convertible preferred stock paid-in-kind dividends............................. $ -- 3,443
================ ===============
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)
(1) Consolidated Financial Statements
Name Change
Effective April 27, 2001, the Company changed its corporate name from
Autotote Corporation to Scientific Games Corporation and its stock symbol to SGM
[AMEX: SGM].
Basis of Presentation
On December 20, 2000, the Company determined to change its fiscal year from
an October 31 year-end to a calendar year-end, beginning with the year ending
December 31, 2001. This report on Form 10-Q covers the three-month and six-month
periods ended June 30, 2001, compared to the three-month and six-month periods
ended June 30, 2000.
The consolidated balance sheets as of December 31, 2000 and June 30, 2001
and the consolidated statements of operations for the three-month and six-month
periods ended June 30, 2000 and 2001, and the consolidated statements of cash
flows for the six months then ended, have been prepared by the Company without
audit. In the opinion of management, all adjustments necessary consisting of
normal recurring entries to present fairly the financial position of the Company
at December 31, 2000 and June 30, 2001 and the results of its operations for the
three-month and six-month periods ended June 30, 2000 and 2001 and its cash
flows for the six months ended June 30, 2000 and 2001 have been made. Certain
information and footnote disclosures, normally included in 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 2000 Annual
Report on Form 10-K. The results of operations for the period ended June 30,
2001 are not necessarily indicative of the operating results for the full year.
Certain items in prior period's consolidated financial statements have been
classified to conform with the current year presentation.
Basic and Diluted Net Income (Loss) Per Share
The following represents a reconciliation of the numerator and denominator
used in computing basic and diluted net income (loss) per share for the
three-month and six-month periods ended June 30, 2000 and 2001:
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------- ---------------------------
2000 2001 2000 2001
------------------ ------------ ----------- -------------
Income (numerator)
Net income (loss)................................... $ 2,284 1,940 3,118 (497)
Convertible preferred stock paid-in-kind dividend... -- 1,744 -- 3,443
------------------ ------------ ----------- -------------
Net income (loss) available to common stockholders.. $ 2,284 196 3,118 (3,940)
================== ============ =========== =============
Shares (denominator)
Basic weighted average common shares outstanding.... 36,807 40,209 36,675 40,186
Effect of diluted securities-stock options, warrants,
and deferred shares (a)........................ 4,279 4,232 4,885 --
------------------ ------------ ----------- -------------
Diluted weighted average common shares outstanding.. 41,086 44,441 41,560 40,186
================== ============ =========== =============
Per Share Amount
Basic net income (loss) per share................... $ 0.06 0.05 0.09 (0.01)
================== ============ =========== =============
Diluted net income (loss) per share................. $ 0.06 0.04 0.08 (0.01)
================== ============ =========== =============
Basic net income (loss) per share available to
common stockholders.............................. $ 0.06 -- 0.09 (0.10)
================== ============ =========== =============
Diluted net income (loss) per share available to
common stockholders.............................. $ 0.06 -- 0.08 (0.10)
================== ============ =========== =============
(a) Potential common shares are not included in the calculation of dilutive
net loss per share in the six months ended June 30, 2001, since the
inclusion would be anti-dilutive.
7
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited, in thousands, except per share amounts)
(1) Consolidated Financial Statements--(Continued)
At June 30, 2001, the Company had outstanding stock options, warrants,
convertible preferred shares and deferred shares, which could potentially dilute
basic earnings per share in the future. (See Notes 13 and 14 to the Consolidated
Financial Statements for the year ended October 31, 2000 in the Company's 2000
Annual Report on Form 10-K.)
Interest Rate Agreements
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133"), as amended by SFAS
138, establishes accounting and reporting standards for derivative instruments
and hedging activities. It requires entities to record all derivative
instruments on the balance sheet at fair value. Changes in the fair value of
derivatives are recorded in each period in current operations or other
comprehensive income (loss), based on whether a derivative is designated as part
of a hedge transaction and the type of hedge transaction. The ineffective
portion of all hedges is recognized in operations.
Pursuant to the terms of the Company's credit facility, the Company is
required to maintain interest rate hedges for a notional amount of not less than
$140,000 for a period of not less than two years. In satisfaction of this
requirement, the Company entered into three interest rate swap agreements in
November 2000 which obligate the Company to pay a fixed LIBOR rate and entitle
the Company to receive a variable LIBOR rate on an aggregate $140,000 notional
amount of debt. The Company has structured these interest rate swap agreements
and intends to structure all such future agreements to qualify for hedge
accounting pursuant to the provisions of SFAS 133. Accumulated other
comprehensive losses resulting from the changes in fair value of the interest
rate hedge instruments were $2,395 and $5,017 at December 31, 2000 and June 30,
2001, respectively. For the six months ended June 30, 2001, the Company recorded
a $2,622 charge to other comprehensive loss for the change in fair value of the
interest rate hedge instruments.
(2) Acquisition of Scientific Games Holdings Corp.
On September 6, 2000, the Company completed the acquisition of Scientific
Games Holdings Corp. ("SGHC"), a world-leading supplier of lottery products,
integrated lottery systems and support services, and pre-paid telephone cards.
The acquisition was completed through a merger in which SGHC became a
wholly-owned subsidiary of the Company, at a cost of approximately $308,000 in
aggregate merger consideration to SGHC stockholders, plus related fees and
expenses. The acquisition was recorded using the purchase method of accounting.
The acquired assets and liabilities were recorded at their estimated fair value
at the date of acquisition. The excess of the purchase price over the fair
values of the net assets acquired was approximately $156,828 and has been
recorded as goodwill, which is being amortized over 20 years. The operating
results of SGHC's businesses have been included in the accompanying consolidated
statements of operations from the date of the acquisition. (See Notes 3, 9 and
13 to the Consolidated Financial Statements for the year ended October 31, 2000
in the Company's 2000 Annual Report on Form 10-K.)
8
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited, in thousands, except per share amounts)
(2) Acquisition of Scientific Games Holdings Corp.--(Continued)
The following table presents unaudited pro forma results of operations as
if the SGHC acquisition and related financing transactions had occurred at the
beginning of the period presented after giving effect to certain adjustments,
including amortization of goodwill and other identifiable intangible assets,
additional depreciation expense, increased interest expense, convertible
preferred stock dividends and related income tax effects. These unaudited pro
forma results were presented using current generally accepted accounting
principles. In June 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 141, Business Combinations
("SFAS 141"), and No. 142, Goodwill and Other Intangible Assets ("SFAS 142").
SFAS 141 becomes effective immediately and SFAS 142, which will become effective
for the Company in year 2002, will change the accounting and reporting for
goodwill and intangible assets. Consequently, beginning January 1, 2002,
amortization of goodwill and intangibles with indefinite lives will cease. The
amount of amortization of all goodwill and intangible assets with indefinite
lives included in the pro forma information shown below for this business
combination, as well as other purchased intangible assets previously recorded by
the Company, is $4.7 million and $9.4 million, respectively, for the three-month
and six-month periods ended June 30, 2000. The Company has not completed its
analysis, including the required impairment testing, but expects that the
majority of this amortization will not continue in future periods. 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 made at the
beginning of the three-month and six-month periods ended June 30, 2000 or the
results that may occur in the future.
Three Months Six Months
Ended Ended
June 30, 2000 June 30, 2000
------------------- -----------------
(unaudited) (unaudited)
Operating revenues.................................................. $ 114,602 219,276
Operating income.................................................... 11,302 20,861
Loss before income tax benefit...................................... (1,037) (4,098)
Net loss............................................................ (1,043) (3,195)
Convertible preferred stock paid-in-kind dividend................... 1,691 3,383
------------------- -----------------
Net loss available to common stockholders........................... $ (2,734) (6,578)
=================== =================
Basic and diluted loss per share:
Net loss per share.................................................. $ (0.03) (0.09)
=================== =================
Net loss per share available to common stockholders................. $ (0.07) (0.18)
=================== =================
9
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited, in thousands, except per share amounts)
(3) Business Segments
The following tables represent revenues and profits by business segments
for the three-month and six-month periods ended June 30, 2000 and 2001.
Operating income reflects an allocation of corporate expenses among business
segments. Interest expense and other (income) deductions are not allocated to
business segments.
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------- ----------------------------
2000 2001 2000 2001
------------------ ------------ ----------- -------------
Service revenue and product sales:
Lottery Group.................................. $ 14,828 61,162 17,797 117,279
Pari-mutuel Group.............................. 22,380 25,018 49,869 54,025
Venue Management Group......................... 15,946 15,821 31,100 31,325
Telecommunications Group....................... -- 10,572 -- 22,052
------------------ ------------ ----------- -------------
$ 53,154 112,573 98,766 224,681
================== ============ =========== =============
Gross profit:
Lottery Group.................................. $ 4,097 22,998 5,012 41,274
Pari-mutuel Group.............................. 10,159 10,188 22,169 21,820
Venue Management Group......................... 4,323 4,696 8,624 9,177
Telecommunications Group....................... -- 4,729 -- 9,628
------------------ ------------ ----------- -------------
Total gross profit........................ $ 18,579 42,611 35,805 81,899
================== ============ =========== =============
Operating income:
Lottery Group.................................. $ 2,450 6,499 2,076 7,818
Pari-mutuel Group.............................. 2,252 2,913 5,621 7,219
Venue Management Group......................... 2,264 2,893 4,394 5,625
Telecommunications Group....................... -- 2,717 -- 5,415
------------------ ------------ ----------- -------------
6,966 15,022 12,091 26,077
Other deductions:
Interest expense............................... 4,388 12,708 8,641 26,288
Other (income) expense......................... (111) (63) (189) 181
------------------ ------------ ----------- -------------
Income (loss) before income tax expense............. $ 2,689 2,377 3,639 (392)
================== ============ =========== =============
10
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited, in thousands, except per share amounts)
(3) Business Segments--(Continued)
December 31, June 30,
2000 2001
------------------- -----------------
Assets
Lottery Group............................................... $ 330,138 334,764
Pari-mutuel Group........................................... 232,990 224,563
Venue Management Group...................................... 34,055 33,346
Telecommunications Group.................................... 37,758 35,030
------------------- -----------------
$ 634,941 627,703
=================== =================
Six Months Ended June 30,
---------------------------------------
2000 2001
------------------- -----------------
Capital and wagering systems expenditures
Lottery Group............................................... $ 10,407 18,321
Pari-mutuel Group........................................... 1,212 2,590
Venue Management Group...................................... 8,376 535
Telecommunications Group.................................... -- 1,025
------------------- -----------------
$ 19,995 22,471
=================== =================
(4) Comprehensive Income (Loss)
The following presents a reconciliation of net income (loss) to
comprehensive income (loss) for the three months and six months ended June 30,
2000 and 2001:
Three Months ended Six Months ended
June 30, June 30,
---------------------------------- ---------------------------
2000 2001 2000 2001
------------------ ------------ ----------- -------------
Net income.......................................... $ 2,284 1,940 3,118 (497)
Other comprehensive income (loss):
Foreign currency translation................... (363) (119) (752) (1,599)
Unrealized gain (loss) on investments.......... -- (360) -- 215
Unrealized gain (loss) on interest rate
swap contracts................................. -- 184 -- (2,622)
------------------ ------------ ----------- -------------
Other comprehensive loss.......................... (363) (295) (752) (4,006)
------------------ ------------ ----------- -------------
Comprehensive income (loss)......................... $ 1,921 1,645 2,366 (4,503)
================== ============ =========== =============
11
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited, in thousands, except per share amounts)
(5) Inventories
Inventories consist of the following:
December 31, June 30,
2000 2001
----------------- ----------------
Parts and work-in-process......................................... $ 16,193 9,239
Finished goods.................................................... 11,415 12,232
----------------- ----------------
$ 27,608 21,471
================= ================
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.
(6) Debt
At June 30, 2001, the Company had approximately $33,817 available for
borrowing under the Company's revolving credit facility (the "Facility"). There
were approximately $14,900 of borrowings outstanding under the Facility and
approximately $16,283 in letters of credit were issued under the Facility at
June 30, 2001. At December 31, 2000, Scientific Games' available borrowing
capacity under the Facility was $46,591.
The Company's financing arrangements impose certain limitations on the
operations of the Company and its subsidiaries, including the maintenance of
certain financial, liquidity and net worth ratios. As a result of both the
financial performance of SGHC prior to the Company's acquisition of SGHC,
principally reflecting transitional and operational matters occurring through
December 31, 2000, and the timing of certain anticipated capital expenditures
and associated borrowings in 2001, management and our lenders amended certain
limitations to be less restrictive. Among other changes, the Facility was
modified so that the planned step-downs in fixed charge coverage ratios and
leverage ratios were delayed by up to six months through September 30, 2002. The
Company is in compliance with the amended covenants as of June 30, 2001 and
expects to remain so during the next twelve months.
12
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited, in thousands, except per share amounts)
(7) Financial Information for Guarantor Subsidiaries and
Non-Guarantor Subsidiaries
The Company conducts substantially all of its business through its domestic
and foreign subsidiaries. The Facility and the Company's 12 1/2% Series B Senior
Subordinated Notes due 2010 (the "Notes") issued in connection with the
acquisition of SGHC, are 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, 2000 and June 30, 2001 and for the three months and six months
ended June 30, 2000 and 2001. 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 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. In addition, corporate interest and administrative
expenses have not been allocated to the subsidiaries.
13
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2000
(unaudited, in thousands)
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
-------------- ------------- ------------- ------------- -------------------
ASSETS
Cash and cash equivalents........... $ 867 (50) 5,671 -- 6,488
Accounts receivable, net............ -- 39,554 20,555 (3,290) 56,819
Inventories......................... -- 21,602 6,470 (464) 27,608
Other current assets................ 186 13,421 2,944 30 16,581
Property and equipment, net......... 2,002 142,446 40,452 (289) 184,611
Investment in subsidiaries.......... 202,980 -- -- (202,980) --
Goodwill............................ 190 154,313 3,088 -- 157,591
Intangible assets................... -- 109,232 22,047 -- 131,279
Other assets........................ 19,832 75,698 1,077 (42,643) 53,964
--------------- ------------- ------------- ------------- ----------------
Total assets.................... $ 226,057 556,216 102,304 (249,636) 634,941
=============== ============= ============= ============= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current installments of
long-term debt................... $ 6,012 8 616 -- 6,636
Current liabilities................. 25,663 51,811 22,866 (2,910) 97,430
Long-term debt, excluding
current installments............. 433,180 19 5,492 (4,647) 434,044
Other non-current liabilities....... 5,786 56,851 21,491 (15,450) 68,678
Intercompany balances............... (272,737) 245,226 27,809 (298) --
Stockholders' equity................ 28,153 202,301 24,030 (226,331) 28,153
--------------- ------------- ------------- ------------- ----------------
Total liabilities and
stockholders' equity.......... $ 226,057 556,216 102,304 (249,636) 634,941
============== ============= ============= ============== ================
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
June 30, 2001
(unaudited, in thousands)
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
-------------- ------------- ------------- ------------- ------------------
ASSETS
Cash and cash equivalents............ $ 914 (166) 7,429 -- 8,177
Accounts receivable, net............. -- 34,430 18,628 -- 53,058
Inventories.......................... -- 17,150 4,856 (535) 21,471
Other current assets................. 569 11,392 5,829 30 17,820
Property and equipment, net.......... 1,953 148,435 38,756 (201) 188,943
Investment in subsidiaries........... 233,941 -- -- (233,941) --
Goodwill............................. 187 151,172 2,597 (812) 153,144
Intangible assets.................... -- 105,801 21,345 -- 127,146
Other assets......................... 19,475 57,329 2,880 (21,740) 57,944
-------------- ------------- ------------- ------------- -------------
Total assets..................... $ 257,039 525,543 102,320 (257,199) 627,703
============== ============= ============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current installments of
long-term debt.................... $ 7,510 8 419 -- 7,937
Current liabilities.................. 18,234 50,520 20,383 639 89,776
Long-term debt, excluding current
installments...................... 434,950 14 550 -- 435,514
Other non-current liabilities........ 8,412 54,768 5,396 1,944 70,520
Intercompany balances................ (236,023) 192,623 43,956 (556) --
Stockholders' equity................. 23,956 227,610 31,616 (259,226) 23,956
-------------- ------------- ------------- ------------- -------------
Total liabilities and stockholders'
equity............................ $ 257,039 525,543 102,320 (257,199) 627,703
============= ============= ============= ============= =============
14
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED STATEMENT OF OPERATIONS
Three Months Ended June 30, 2000
(unaudited, in thousands)
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
-------------- --------------- --------------- -------------- --------------
Operating revenues...................... $ -- 44,357 13,553 (4,756) 53,154
Operating expenses...................... -- 29,111 10,319 (4,855) 34,575
------------- --------------- --------------- -------------- --------------
Gross profit......................... -- 15,246 3,234 99 18,579
Selling, general and administrative
expenses............................. 2,365 3,070 1,112 (3) 6,544
Depreciation and amortization........... 71 4,210 813 (25) 5,069
------------- --------------- --------------- -------------- --------------
Operating income (loss).............. (2,436) 7,966 1,309 127 6,966
Interest expense........................ 4,145 179 215 (151) 4,388
Other (income) expense.................. (133) (137) 8 151 (111)
------------- --------------- --------------- -------------- --------------
Income (loss) before equity in income of
subsidiaries and income taxes........ (6,448) 7,924 1,086 127 2,689
Equity in income of subsidiaries........ 8,792 -- -- (8,792) --
Income tax expense...................... 60 277 68 -- 405
------------- --------------- --------------- -------------- --------------
Net income.............................. $ 2,284 7,647 1,018 (8,665) 2,284
============= =============== =============== ============== ==============
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED STATEMENT OF OPERATIONS
Three Months Ended June 30, 2001
(unaudited, in thousands)
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
--------------- --------------- --------------- --------------- ---------------
Operating revenues...................... $ -- 85,879 29,735 (3,041) 112,573
Operating expenses...................... -- 52,958 19,829 (2,825) 69,962
--------------- --------------- --------------- --------------- ---------------
Gross profit......................... -- 32,921 9,906 (216) 42,611
Selling, general and administrative
expenses............................. 3,669 7,370 3,014 (32) 14,021
Depreciation and amortization........... 76 12,010 1,487 (5) 13,568
--------------- --------------- --------------- --------------- ---------------
Operating income (loss).............. (3,745) 13,541 5,405 (179) 15,022
Interest expense........................ 12,637 118 462 (509) 12,708
Other (income) expense.................. (489) (448) 434 440 (63)
--------------- --------------- --------------- --------------- ---------------
Income (loss) before equity in income of
subsidiaries and income taxes........ (15,893) 13,871 4,509 (110) 2,377
Equity in income of subsidiaries........ 17,833 -- -- (17,833) --
Income tax expense (benefit)............ -- (1,022) 1,459 -- 437
--------------- --------------- --------------- --------------- ---------------
Net income.............................. $ 1,940 14,893 3,050 (17,943) 1,940
=============== =============== =============== =============== ===============
15
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED STATEMENT OF OPERATIONS
Six Months Ended June 30, 2000
(unaudited, in thousands)
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
--------------- --------------- --------------- --------------- ---------------
Operating revenues...................... $ -- 82,171 24,461 (7,866) 98,766
Operating expenses...................... -- 51,691 19,333 (8,063) 62,961
--------------- --------------- --------------- --------------- ---------------
Gross profit......................... -- 30,480 5,128 197 35,805
Selling, general and administrative
expenses............................. 4,754 6,364 2,164 (7) 13,275
Depreciation and amortization........... 143 8,711 1,635 (50) 10,439
--------------- -------------- --------------- --------------- ---------------
Operating income (loss).............. (4,897) 15,405 1,329 254 12,091
Interest expense........................ 8,157 367 397 (280) 8,641
Other (income) expense.................. (249) (215) (5) 280 (189)
--------------- -------------- --------------- --------------- ---------------
Income (loss) before equity in income of
subsidiaries and income taxes........ (12,805) 15,253 937 254 3,639
Equity in income of subsidiaries........ 16,023 -- -- (16,023) --
Income tax expense...................... 100 383 38 -- 521
--------------- -------------- --------------- --------------- ---------------
Net income.............................. $ 3,118 14,870 899 (15,769) 3,118
=============== ============== =============== =============== ===============
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED STATEMENT OF OPERATIONS
Six Months Ended June 30, 2001
(unaudited, in thousands)
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
--------------- --------------- --------------- --------------- ---------------
Operating revenues...................... $ -- 171,141 61,545 (8,005) 224,681
Operating expenses...................... -- 107,790 42,737 (7,745) 142,782
--------------- --------------- --------------- --------------- ---------------
Gross profit......................... -- 63,351 18,808 (260) 81,899
Selling, general and administrative
expenses............................. 6,656 15,846 6,179 (35) 28,646
Depreciation and amortization........... 152 24,066 2,998 (40) 27,176
--------------- -------------- --------------- --------------- ---------------
Operating income (loss).............. (6,808) 23,439 9,631 (185) 26,077
Interest expense........................ 26,193 122 1,054 (1,081) 26,288
Other (income) expense.................. (538) (1,035) 690 1,064 181
--------------- -------------- --------------- --------------- ---------------
Income (loss) before equity in income of
subsidiaries and income taxes........ (32,463) 24,352 7,887 (168) (392)
Equity in income of subsidiaries........ 31,341 -- -- (31,341) --
Income tax expense (benefit)............ (625) (1,858) 2,588 -- 105
--------------- -------------- --------------- --------------- ---------------
Net income (loss)....................... $ (497) 26,210 5,299 (31,509) (497)
=============== ============== =============== =============== ===============
16
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED STATEMENT OF CASH FLOWS
Six Months Ended June 30, 2000
(unaudited, in thousands)
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
--------------- --------------- --------------- --------------- ---------------
Net income.............................. $ 3,118 14,870 899 (15,769) 3,118
Depreciation and amortization........ 143 8,711 1,635 (50) 10,439
Equity in income of subsidiaries..... (16,023) -- -- 16,023 --
Changes in operating assets and
liabilities........................ (1,387) 3,510 (4,489) (36) (2,402)
Other non-cash adjustments........... 599 313 (91) -- 821
--------------- --------------- --------------- --------------- ----------------
Net cash provided by (used in) operating
activities........................... (13,550) 27,404 (2,046) 168 11,976
--------------- --------------- --------------- --------------- ----------------
Cash flows from investing activities:
Capital and wagering systems
expenditures....................... (38) (17,107) (2,850) -- (19,995)
Other assets and investments......... (1,051) (2,263) (688) (99) (4,101)
--------------- --------------- --------------- --------------- ----------------
Net cash used in investing activities... (1,089) (19,370) (3,538) (99) (24,096)
--------------- --------------- --------------- --------------- ----------------
Cash flows from financing activities:
Net borrowing (repayments) under
lines of credit.................... (150) -- -- -- (150)
Proceeds from issuance of long-term
debt............................... 10,000 -- 952 -- 10,952
Payments on long-term debt........... -- (1,203) (331) -- (1,534)
Proceeds from stock issue............ 1,429 (448) 447 -- 1,428
Other, principally intercompany
balances........................... (1,537) (2,621) 4,228 (70) --
--------------- --------------- --------------- --------------- ----------------
Net cash provided by (used in) financing
activities........................... 9,742 (4,272) 5,296 (70) 10,696
--------------- --------------- --------------- --------------- ----------------
Effect of exchange rate changes on cash. -- (135) (111) -- (246)
--------------- --------------- --------------- --------------- ----------------
Increase (decrease) in cash and cash
equivalents.......................... (4,897) 3,627 (399) (1) (1,670)
Cash and cash equivalents, beginning of
period.................................. 5,284 (4,104) 2,481 1 3,662
--------------- --------------- --------------- --------------- ----------------
Cash and cash equivalents, end of period $ 387 (477) 2,082 -- 1,992
=============== =============== =============== =============== ================
17
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED STATEMENT OF CASH FLOWS
Six Months Ended June 30, 2001
(unaudited, in thousands)
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
--------------- --------------- --------------- --------------- ---------------
Net income (loss)....................... $ (497) 26,210 5,299 (31,509) (497)
Depreciation and amortization........ 152 24,066 2,998 (40) 27,176
Equity in income of subsidiaries..... (31,341) -- -- 31,341 --
Changes in operating assets and
liabilities........................ (4,787) 4,043 (1,403) 1,891 (256)
Other non-cash adjustments........... 1,324 (1,782) 853 -- 395
--------------- --------------- --------------- --------------- ---------------
Net cash provided by (used in) operating
activities........................... (35,149) 52,537 7,747 1,683 26,818
--------------- --------------- --------------- --------------- ---------------
Cash flows from investing activities:
Capital and wagering systems
expenditures....................... (47) (18,100) (4,370) 46 (22,471)
Other assets and investments......... (842) (5,437) 1,343 97 (4,839)
--------------- --------------- --------------- --------------- ---------------
Net cash used in investing activities... (889) (23,537) (3,027) 143 (27,310)
--------------- --------------- --------------- --------------- ---------------
Cash flows from financing activities:
Net borrowing under lines of credit.. 5,900 -- -- -- 5,900
Payments on long-term debt........... (2,632) (5) (524) 193 (2,968)
Proceeds from stock issue............ 121 383 (183) (200) 121
Other, principally intercompany balances 32,639 (28,644) (2,176) (1,819) --
--------------- --------------- --------------- --------------- ---------------
Net cash provided by (used in) financing
activities........................... 36,028 (28,266) (2,883) (1,826) 3,053
--------------- --------------- --------------- --------------- ---------------
Effect of exchange rate changes on cash. 57 (850) (79) -- (872)
--------------- --------------- --------------- --------------- ---------------
Increase (decrease) in cash and cash
equivalents.......................... 47 (116) 1,758 -- 1,689
Cash and cash equivalents, beginning of
period.................................. 867 (50) 5,671 -- 6,488
--------------- --------------- --------------- --------------- ---------------
Cash and cash equivalents, end of period $ 914 (166) 7,429 -- 8,177
=============== =============== =============== =============== ===============
18
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR
THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2001
Background
Effective April 27, 2001, the Company changed its corporate name from
Autotote Corporation to Scientific Games Corporation and its stock symbol to SGM
[AMEX: SGM].
The Company changed its fiscal year from an October 31 year-end to a
calendar year-end, beginning with the year ending December 31, 2001. As a
result, the Company is filing this report for the second quarter and first six
months of year 2001, which ended on June 30, 2001, compared to the three-month
and six-month periods ended June 30, 2000.
The following discussion addresses the financial condition of the Company
as of June 30, 2001 and the results of its operations for the three-month and
six-month periods ended June 30, 2001, compared to the same periods in the prior
year. This discussion should be read in conjunction with Management's Discussion
and Analysis of Financial Condition and Results of Operations for the fiscal
year ended October 31, 2000, included in the Company's 2000 Annual Report on
Form 10-K.
We operate in four business segments: Lottery Group, Pari-mutuel Group,
Venue Management Group and Telecommunications Group. Our Lottery Group consists
of two product lines: Instant Tickets and Related Services ("ITRS") and Lottery
Systems. ITRS includes ticket design and manufacturing as well as value-added
services, including game design, sales and marketing support, inventory
management and warehousing and fulfillment services. In addition, this division
includes promotional instant tickets and pull-tab tickets that we sell to both
lottery and non-lottery customers. Lottery Systems includes the supply of
transaction processing software for the accounting and validation of both
instant ticket and on-line lottery games, point-of-sale terminal hardware sales,
central site computers and communication hardware sales, and ongoing support and
maintenance services for these products. This product line also includes
software and hardware and support service for sports betting and credit card
processing systems.
Our Pari-mutuel Group is comprised of our North American and international
on-track, off-track and inter-track pari-mutuel services, simulcasting and
communications services, and video gaming, as well as sales of pari-mutuel
systems and equipment.
Our Venue Management Group is comprised of the Connecticut off-track
betting operations, and the Company's Netherlands on-track and off-track betting
operations.
Our Telecommunications Group is comprised of the prepaid cellular phone
cards business, which was acquired by the Company as part of the SGHC
acquisition.
In the second quarter of fiscal 2000, the Company completed the sale of its
SJC Video business, which had previously been reported as a separate segment.
In the three-month and six-month periods ended June 30, 2000, our Lottery
Group consisted solely of the Lottery Systems product line, exclusive of sports
betting and credit card processing services. In addition, the Telecommunications
Group was not yet acquired by the Company as part of the SGHC acquisition.
The Company's revenues are derived from two principal sources: service
revenues and sales revenues. Service revenues are earned pursuant to multi-year
contracts to provide ITRS and wagering systems and services; or are derived from
wagering by customers at facilities owned or leased by the Company. Sales
revenues are derived from sales of prepaid phone cards and from contracts for
the sale of wagering systems, equipment, and software licenses.
The first calendar quarter and the fourth calendar quarter of the year
traditionally comprise the weakest season for the Company's pari-mutuel wagering
service revenue. Wagering equipment sales and software license revenues usually
reflect a limited number of large transactions that do not recur on an annual
basis. Consequently, revenues and operating results can vary substantially from
period to period as a result of the timing of revenue recognition for major
equipment sales and software license revenue. In addition, instant ticket and
prepaid phone card sales may vary depending on the size and timing of contract
awards, changes in customer budgets, inventory ticket position, lottery retail
sales and general economic conditions.
19
Operating results may also vary significantly from period to period
depending on the addition or disposition of business units in each period. The
acquisition of SGHC in 2000, which was accounted for as a purchase, affects the
comparability of operations from period to period (see Note 3 to the
Consolidated Financial Statements for the year ended October 31, 2000 included
in the Company's 2000 Annual Report on Form 10-K).
The following tables and discussion present actual data for the three-month
and six-month periods ended June 30, 2000 and 2001, and pro forma data for
three-month and six-month periods ended June 30, 2000, as if the Company had
acquired SGHC on January 1, 2000.
Three Months Ended Six Months Ended
Results of Operations: June 30, June 30,
----------------------------------------------- ---------------------------------------------
Actual Pro Forma Actual Actual Pro Forma Actual
2000 2000 2001 2000 2000 2001
-------------- --------------- ------------ ------------ -------------- ------------
Lottery Group
Operating Revenues:
Service revenue....... $ 2,937 51,028 55,548 5,906 100,079 108,751
Sales revenue......... 11,891 15,148 5,614 11,891 17,194 8,528
-------------- --------------- ------------ ------------ -------------- ------------
$14,828 66,176 61,162 17,797 117,273 117,279
============== =============== ============ ============ ============== ============
Gross Profit (excluding
depreciation
and amortization)........ $ 4,097 19,914 22,998 5,012 37,602 41,274
============== =============== ============ ============ ============== ============
Pari-mutuel Group
Operating Revenues:
Service revenue....... $20,002 20,002 20,271 39,538 39,538 39,604
Sales revenue......... 2,378 2,378 4,747 10,331 10,331 14,421
-------------- --------------- ------------ ------------ -------------- ------------
Total Revenue.... $22,380 22,380 25,018 49,869 49,869 54,025
============== =============== ============ ============ ============== ============
Gross Profit (excluding
depreciation
and amortization)........ $10,159 10,159 10,188 22,169 22,169 21,820
============== =============== ============ ============ ============== ============
Venue Management Group
Operating Revenues:
Service revenue....... $15,946 15,946 15,821 31,100 31,100 31,325
============== =============== ============ ============ ============== ============
Gross Profit (excluding
depreciation
and amortization)........ $ 4,323 4,323 4,696 8,624 8,624 9,177
============== =============== ============ ============ ============== ============
Telecommunications Group
Operating Revenues:
Sales revenue......... $ -- 10,100 10,572 -- 21,034 22,052
============== =============== ============ ============ ============== ============
Gross Profit (excluding
depreciation
and amortization)........ $ -- 4,245 4,729 -- 9,129 9,628
============== =============== ============ ============ ============== ============
Company Total
Operating Revenues:
Service revenue....... $38,885 86,976 91,640 76,544 170,717 179,680
Sales revenue......... 14,269 27,626 20,933 22,222 48,559 45,001
-------------- --------------- ------------ ------------ -------------- ------------
Total Revenue.... $53,154 114,602 112,573 98,766 219,276 224,681
============== =============== ============ ============ ============== ============
Gross Profit (excluding
depreciation
and amortization)........ $18,579 38,641 42,611 35,805 77,524 81,899
============== =============== ============ ============ ============== ============
20
Three Months Ended June 30, 2001 compared to Three Months Ended June 30, 2000
Revenue Analysis
Lottery Group revenue of $61.2 million in the three months ended June 30,
2001 improved $46.3 million from the same period in 2000 due to the addition of
SGHC in September 2000, the start-up of on-line Vermont and New Hampshire
lotteries in July 2000 and the sale of terminals to the Jamaica lottery in June
2001, partially offset by the non-recurring EXTREMA(R) terminal sales to foreign
customers in the second quarter of 2000. On a pro forma basis, total service
revenue in the three months ended June 30, 2001 increased $4.5 million from the
same period in 2000 largely due to the addition of new on-line lotteries in
Vermont and New Hampshire and solid growth in recurring instant ticket revenue.
On a pro forma basis, total sales revenue declined $9.5 million as a result of
the previously mentioned non-recurring equipment sales to foreign customers in
2000.
Pari-mutuel Group service revenue of $20.3 million in the three months
ended June 30, 2001 increased $0.3 million from the same period in 2000. This
increase is attributable to revenue improvements in the North American
pari-mutuel, simulcasting and NASRIN(TM) service operations, partially offset by
lower pari-mutuel revenues in the French operations and lower revenues on
European operations as a result of the strengthening of the dollar. Sales
revenue of $4.7 million in the three months ended June 30, 2001 increased $2.4
million from same period in 2000 due to higher systems and equipment sales to
foreign customers.
Venue Management Group service revenue of $15.8 million in the three months
ended June 30, 2001 was $0.1 million lower than in the same period in 2000,
reflecting lower revenues in the Netherlands operations as a result of the
strengthening of the dollar, partially offset by Handle related revenue
increases in the Connecticut OTB operations.
Telecommunications Group sales revenue of $10.6 million in the three months
ended June 30, 2001 is the result of the acquisition of SGHC in September 2000.
On a pro forma basis, revenues in the three months ended June 30, 2001 increased
$0.5 million over the prior year period as a 20% volume growth was partially
offset by price decreases, reflecting overall softness in the telecommunications
industry.
Gross Profit Analysis
The total gross profit earned, exclusive of depreciation and amortization,
of $42.6 million in the three months ended June 30, 2001 increased $24.0 million
from the same period in 2000 as a result of the acquisition of SGHC in September
2000. On a pro forma basis, the gross profit earned, exclusive of depreciation
and amortization, increased $4.0 million primarily because of revenue
improvements and significant cost reductions. These improvements were partially
offset by lower margins on systems and equipment sales reflecting a change in
the mix of product sold.
On a pro forma basis, gross profit as a percentage of service revenues
increased to 37% in the three months ended June 30, 2001, compared to 33% in the
same period in 2000. This gross profit increase results primarily from revenue
improvements and cost control measures in the Venue Management Group and the
Lottery Group. These improvements were partially offset by lower margins on the
European pari-mutuel service revenues. On a pro forma basis, gross profit as a
percentage of sales revenues was 43% in the three months ended June 30, 2001
compared to 36% in the same period in 2000, reflecting the change in the mix of
systems and equipment sold in the two periods and improved margins on phone card
sales.
The Lottery Group gross profit of $23.0 million, or 38% of revenues,
increased 16% on a pro forma basis in the three months ended June 30, 2001 from
$19.9 million, or 30% of revenues, in the same period in 2000. Gross margin
improvements were realized as a result of revenue improvements discussed above,
coupled with various cost reduction programs. These margin improvements were
partially offset by non-recurring 2000 terminal sales.
Pari-mutuel Group gross profit of $10.2 million, or 41% of revenues, in the
three months ended June 30, 2001, was comparable to the $10.2 million, or 45% of
revenues, in the same period in 2000. The decrease in gross margin percent is
primarily attributable to lower margins on systems and equipment sales as a
result of a change in the mix of products sold.
21
Venue Management Group gross profit of $4.7 million, or 30% of revenues, in
the three months ended June 30, 2001, improved $0.4 million from $4.3 million,
or 27% of revenues, in the same period in 2000. This improvement primarily
reflects higher Handle and reduced operating costs in the Connecticut OTB
operation.
The Telecommunications Group gross profit of $4.7 million in the three
months ended June 30, 2001, improved $0.5 million from $4.2 million on a pro
forma basis in the same period in 2000. Gross profit in the three months ended
June 30, 2001 was 45% of revenues as compared to 42% of revenues on a pro forma
basis in the same period in 2000 as improved margins on phone card sales
resulted from cost saving initiatives implemented in fiscal 2000, partially
offset by price reductions.
Expense Analysis
Selling, general and administrative expenses of $14.0 million in the three
months ended June 30, 2001 were $7.5 million higher than in the same period in
2000 primarily as a result of the acquisition of SGHC in September 2000. On a
pro forma basis, selling, general and administrative expenses were $1.6 million
lower in the three months ended June 30, 2001 than in the same period in 2000,
primarily as a result of cost reduction programs and merger-related synergies.
Depreciation and amortization expense of $13.6 million in the three months
ended June 30, 2001 increased $8.5 million from $5.1 million in the same period
in 2000 as a result of the SGHC acquisition, coupled with the expanded domestic
lottery business. On a pro forma basis, depreciation and amortization expenses
were $3.6 million higher in the three months ended June 30, 2001 than in the
same period in 2000, primarily as a result of the expanded domestic lottery
business and SGHC acquisition-related goodwill and intangible amortization.
Interest expense of $12.7 million in the three months ended June 30, 2001
increased $8.3 million from $4.4 million in the same period in 2000 as a result
of higher debt levels, interest rates and financing costs incurred in connection
with the acquisition of SGHC.
Income Tax Expense
Income tax expense of $0.4 million in the three months ended June 30, 2001
was equal to the expense in the same period in 2000. The expense includes state
taxes and foreign taxes, partially offset by the benefit from the reversal of
deferred taxes provided in connection with the acquisition of SGHC. No current
tax benefit has been recognized on domestic operating losses in either period.
Six Months Ended June 30, 2001 compared to Six Months Ended June 30, 2000
Revenue Analysis
Lottery Group revenue of $117.3 million in the six months ended June 30,
2001 improved $99.5 million from the same period in 2000 due to the addition of
SGHC in September 2000, the start-up of the on-line Vermont and New Hampshire
lotteries in July 2000 and the sale of terminals to the Jamaica lottery in June
2001, partially offset by the non-recurring EXTREMA(R) terminal sales to foreign
customers in the second quarter of 2000. On a pro forma basis, total service
revenue in the six months ended June 30, 2001 increased $8.7 million from the
same period in 2000 largely due to the addition of new on-line lotteries in
Vermont and New Hampshire and solid growth in recurring instant ticket revenue
and instant ticket cooperative service contracts. On a pro forma basis, total
sales revenue declined $8.7 million as a result of the previously mentioned
non-recurring equipment sales to foreign customers in 2000.
Pari-mutuel Group service revenue of $39.6 million in the six months ended
June 30, 2001 increased $0.1 million from the same period in 2000. This increase
is attributable to revenue improvements in the North American pari-mutuel,
simulcasting and NASRIN(TM) service operations, partially offset by lower
pari-mutuel revenues in the French operations and lower revenues on European
operations as a result of the strengthening of the dollar. Sales revenue of
$14.4 million in the six months ended June 30, 2001 increased $4.1 million from
same period in 2000 due to higher systems and equipment sales to foreign
customers.
Venue Management Group service revenue of $31.3 million in the six months
ended June 30, 2001 was $0.2 million higher than in the same period in 2000,
reflecting Handle related revenue increases in the Connecticut OTB operations,
partially offset by lower revenues on the Netherlands operations as a result of
the strengthening of the dollar.
22
Telecommunications Group sales revenue of $22.1 million in the six months
ended June 30, 2001 is the result of the acquisition of SGHC in September 2000.
On a pro forma basis, revenues in the six months ended June 30, 2001 increased
$1.0 million over the prior year period as a 23% growth in volume was partially
offset by price decreases, reflecting overall softness in the telecommunications
industry.
Gross Profit Analysis
The total gross profit earned, exclusive of depreciation and amortization,
of $81.9 million in the six months ended June 30, 2001 increased $46.1 million
from the same period in 2000 as a result of the acquisition of SGHC in September
2000. On a pro forma basis, the gross profit earned, exclusive of depreciation
and amortization, increased $4.4 million primarily because of revenue
improvements and significant cost reductions. These improvements were partially
offset by lower margins on systems and equipment sales reflecting a change in
mix of products sold.
On a pro forma basis, gross profit as a percentage of service revenues
increased to 35% in the six months ended June 30, 2001, compared to 34% in the
same period in 2000. This gross profit increase results primarily from revenue
improvements and cost control measures in the Connecticut OTB, lottery
cooperative services and instant lottery tickets businesses. These improvements
were partially offset by lower margins on the North American and European
Pari-mutuel service revenues and start-up costs in the new on-line lotteries. On
a pro forma basis, gross profit as a percentage of sales revenues was 41% in the
six months ended June 30, 2001 compared to 40% in the same period in 2000,
reflecting the change in the mix of systems and equipment sold in the two
periods.
The Lottery Group gross profit of $41.3 million, or 35% of revenues,
increased 10% on a pro forma basis in the six months ended June 30, 2001 from
$37.6 million or 32% of revenues in the same period in 2000. Gross margin
improvements were realized as a result of the addition of the Vermont and New
Hampshire lottery contracts in July 2000, and due to revenue improvements in the
lottery cooperative services and the domestic instant lottery tickets
businesses. These margin improvements were partially offset by non-recurring
2000 terminal sales.
Pari-mutuel Group gross profit of $21.8 million or 40% of revenues in the
six months ended June 30, 2001, decreased from $22.0 million or 44% of revenues
in the same period in 2000. The decrease in gross margin percentage is primarily
attributable to reduced revenues on VGMs and foreign services, and lower margins
on systems and equipment sales to foreign customers, partially offset by the
benefits of cost reduction programs.
Venue Management Group gross profit of $9.2 million or 29% of revenues in
the six months ended June 30, 2001, improved $0.6 million from $8.6 million or
28% of revenues in the same period in 2000. This improvement primarily reflects
higher Handle and reduced operating costs in the Connecticut OTB operation.
The Telecommunications Group gross profit of $9.6 million in the six months
ended June 30, 2001, improved $0.5 million from $9.1 million on a pro forma
basis in the same period in 2000. Gross profit in the six months ended June 30,
2001 was 44% of revenues as compared to 43% of revenues on a pro forma basis in
the same period in 2000, as improved margins on phone card sales resulted from
cost saving initiatives implemented in fiscal 2000, partially offset by price
reductions and increased freight expenses.
Expense Analysis
Selling, general and administrative expenses of $28.6 million in the six
months ended June 30, 2001 were $15.4 million higher than in the same period in
2000 primarily as a result of the acquisition of SGHC in September 2000. On a
pro forma basis, selling, general and administrative expenses were $4.5 million
lower in the six months ended June 30, 2001 than in the same period in 2000,
primarily as a result of cost reduction programs and merger-related synergies.
Depreciation and amortization expense of $27.2 million in the six months
ended June 30, 2001 increased $16.8 million from $10.4 million in the same
period in 2000 as a result of the SGHC acquisition, coupled with the expanded
domestic lottery business. On a pro forma basis, depreciation and amortization
expenses were $7.3 million higher in the six months ended June 30, 2001 than in
the same period in 2000, primarily as a result of the expanded domestic lottery
business and SGHC acquisition-related goodwill and intangible amortization.
Interest expense of $26.3 million in the six months ended June 30, 2001
increased $17.6 million from $8.7 million in the same period in 2000 as a result
of higher debt levels, interest rates and financing costs incurred in connection
with the acquisition of SGHC.
23
Income Tax Expense
Income tax expense was $0.1 million in the six months ended June 30, 2001
compared to an expense of $0.5 million in the same period in 2000. The expense
includes state taxes and foreign taxes, partially offset by the benefit from the
reversal of deferred taxes provided in connection with the acquisition of SGHC
and the recovery of previously paid federal taxes. No current tax benefit has
been recognized on domestic operating losses in either period.
Liquidity, Capital Resources and Working Capital
In order to finance the SGHC acquisition and refinance substantially all of
the then existing indebtedness of the Company, we conducted a series of
financings in September 2000. As a result, our capital structure changed
significantly and, among other things, we are a significantly leveraged company.
As a result of the acquisition and debt refinancing, we have total indebtedness
outstanding of approximately $443.5 million at June 30, 2001. We have also
recorded a substantial increase in goodwill and other intangible assets in
connection with the SGHC acquisition and a corresponding increase in
amortization expense.
At June 30, 2001, the Company's available cash and borrowing capacity
totaled $42.0 million compared to $53.1 million at December 31, 2000. Net cash
provided by operating activities was $26.8 million for the six months ended June
30, 2001. In this period, we spent $22.5 million for wagering systems and
capital expenditures, $4.4 million in software expenditures and repaid $3.0
million on long-term debt. These cash expenditures were funded primarily with
net cash provided by operating activities and increased borrowings under our
revolving credit facility.
A significant portion of our cash flows from operations must be used to pay
our interest expense and repay our indebtedness, which will reduce the funds
that would otherwise be available to us for our operations and capital
expenditures. We believe that our cash flow from operations, available cash and
available borrowings under our revolving credit facility will be sufficient to
meet our liquidity needs, including anticipated capital expenditures, for the
foreseeable future; however, we cannot assure you that this will be the case.
While we are not aware of any reason to do so, if we need to refinance all or
part of our indebtedness, including the Notes, on or before their maturity, we
cannot assure you that we will be able to refinance any of our indebtedness,
including our Facility and the Notes, on commercially reasonable terms or at
all.
The Company's financing arrangements impose certain limitations on the
operations of the Company and its subsidiaries, including the maintenance of
certain financial, liquidity and net worth ratios. As a result of both the
financial performance of SGHC prior to the Company's acquisition of SGHC,
principally reflecting transitional and operational matters occurring through
December 31, 2000, and the timing of certain anticipated capital expenditures
and associated borrowings in 2001, in the first quarter of 2001, management and
our lenders amended certain limitations to be less restrictive. Among other
changes, the Facility was modified so that the planned step-downs in fixed
charge coverage ratios and leverage ratios were delayed by up to six months
through September 30, 2002. The Company is in compliance with the amended
covenants as of June 30, 2001 and expects to remain so during the next twelve
months.
Forward-Looking Statements
Throughout this Report on Form 10-Q we make "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Forward-looking statements include the words
"may," "will," "estimate," "intend," "continue," "believe," "except" or
"anticipate" and other similar words. The forward-looking statements contained
in this Report on Form 10-Q are generally located in the material set forth
under the heading "Management's Discussion and Analysis of Financial Condition
and Results of Operations" but may be found in other locations as well. These
forward-looking statements generally relate to plans and objectives for future
operations and are based upon management's reasonable estimates of future
results or trends. Although we believe that the plans and objectives reflected
in or suggested by such forward-looking statements are reasonable, such plans or
objectives may not be achieved.
24
Actual results may differ from projected results due, but not limited, to
unforeseen developments, including developments 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 and development; economic, competitive,
demographic, business and other conditions in our local and regional markets;
changes or developments in the laws, regulations or taxes in the gaming and
lottery industries; actions taken or omitted to be taken by third parties,
including customers, suppliers, competitors, members 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; and
the loss of any license or permit, including the failure to obtain an
unconditional renewal of a required gaming license on a timely basis.
Actual future results may be materially different from what we expect. We
will not update forward-looking statements even though our situation may change
in the future.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our products and services are sold to a diverse group of customers
throughout the world. As such, we are subject to certain risks and uncertainties
as a result of changes in general economic conditions, sources of supply,
competition, foreign exchange rates, tax reform, litigation and regulatory
developments. The diversity and breadth of our products and geographic
operations mitigate the risk that adverse changes in any event would materially
affect our financial position. Additionally, as a result of the diversity of our
customer base, we do not consider ourselves exposed to concentration of credit
risks. These risks are further minimized by setting credit limits, ongoing
monitoring of customer account balances, and assessment of the customers'
financial strengths.
Inflation has not had an abnormal or unanticipated effect on our
operations. Inflationary pressures would be significant to our business if raw
materials used for instant lottery ticket production, prepaid phone card
production or terminal manufacturing are significantly affected. Available
supply from the paper and electronics industries tends to fluctuate and prices
may be affected by supply.
For fiscal 2000, inflation was not a significant factor in our results of
operations, and we were not impacted by significant pricing changes in our
costs, except for personnel related expenditures. We are unable to forecast the
prices or supply of substrate, component parts or other raw materials for the
balance of 2001, but we currently do not anticipate any substantial changes that
will materially affect our operating results.
In certain limited cases, our lottery contracts with our customers contain
provisions to adjust for inflation on an annual basis, but we cannot be assured
that this adjustment would cover raw material price increases or other costs of
services. While we have long-term and generally satisfactory relationships with
most of our suppliers, we also believe alternative sources to meet our raw
material and production needs are available.
In the normal course of business, the Company is exposed to fluctuations in
interest rates and equity market risks as the Company seeks debt and equity
capital to sustain its operations. At June 30, 2001, approximately one-third of
the Company's debt was in fixed rate instruments. We consider the fair value of
all financial instruments to be not materially different from their carrying
value at year-end. The following table provides information about the Company's
financial instruments that are sensitive to changes in interest rates. The
table presents principal cash flows and related weighted-average interest rates
by expected maturity dates.
25
Principal Amount by Expected Maturity - Average Interest Rate
June 30, 2001
Expected Maturity Date (dollars in $000)
There- Fair
2001 2002 2003 2004 2005 After Total value
------------ ---------- ----------- --------- --------- ---------- ---------- -----------
Long-term debt:
Fixed interest rate debt $ 150,000 150,000 149,250
Interest rate 12.5%
Variable interest rate debt $ 3,350 8,950 11,950 14,950 17,200 234,600 291,000 274,143
Average interest rate 8.71% 8.64% 8.59% 8.55% 8.54% 9.21% 9.09%
In November 2000, to reduce the risks associated with fluctuations in
market interest rates and in response to requirements in the Facility (see Note
9 to the Consolidated Financial Statements for the year ended October 31, 2000
in the Company's 2000 Annual Report on Form 10-K) the Company entered into three
interest rate swap contracts for an aggregate notional amount of $140,000. The
following table provides information about the Company's derivative financial
instruments. The table presents notional amounts and weighted-average swap rates
by contractual maturity dates. The Company does not hold any market risk
instruments for trading purposes.
Notional Amount by Expected Maturity - Average Swap Rate
Expected Maturity Date (dollars in $000)
There- Fair
2001 2002 2003 2004 2005 After Total value
------------ ---------- ----------- --------- --------- ---------- ---------- -----------
Interest rate swaps:
Fixed to variable $ - - 140,000 - - - 140,000 134,983
Receive fixed-3-month
LIBOR - - 6.52% - - - 6.52%
The Company is also exposed to fluctuations in foreign currency exchange
rates as the financial results of its foreign subsidiaries are translated into
U.S. dollars in consolidation. Assets and liabilities outside the United States
are primarily located in the United Kingdom, Germany, Netherlands, France and
Austria. The Company's investment in foreign subsidiaries with a functional
currency other than the U.S. dollar are generally considered long-term
investments. Accordingly, the Company does not hedge these net investments.
Translation gains and losses historically have not been material. We manage our
foreign currency exchange risks on a global basis by one or more of the
following: (i) securing payment from our customers in U.S. dollars, when
possible, (ii) utilizing borrowings denominated in foreign currency, and (iii)
entering into foreign currency exchange contracts. In addition, a significant
portion of the cost attributable to our foreign operations is incurred in the
local currencies. We believe that a 10% adverse change in currency exchange
rates would not have a significant adverse effect on the net earnings or cash
flows of the Company. We may, from time to time, enter into foreign currency
exchange or other contracts to hedge the risk associated with certain firm sales
commitments, anticipated revenue streams and certain assets and liabilities
denominated in foreign currencies. We do not engage in currency speculation.
Our cash and cash equivalents and investments are in high-quality
securities placed with a wide array of financial institutions with high credit
ratings. This investment policy limits our exposure to concentration of credit
risks.
26
Impact of Recently Issued Accounting Standards
In July 2001, the FASB issued Statement No. 141, Business Combinations,
("SFAS 141") and Statement No. 142, Goodwill and Other Intangible Assets ("SFAS
142"). SFAS 141 requires that the purchase method of accounting be used for all
business combinations initiated or completed after June 30, 2001. SFAS 141 also
specifies criteria that intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill. SFAS
142 will require that goodwill and intangible assets with indefinite useful
lives no longer be amortized. Instead, they will be tested for impairment at
least annually in accordance with the provisions of SFAS 142. SFAS 142 will also
require that intangible assets with definite useful lives be amortized over
their respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
The Company is required to adopt the provisions of SFAS 141 immediately,
and SFAS 142 effective January 1, 2002. Furthermore, any goodwill and any
intangible asset determined to have an indefinite useful life that is acquired
in a purchase business combination completed after June 30, 2001 will not be
amortized, but will be evaluated for impairment in accordance with the
appropriate pre-SFAS 142 accounting literature. Goodwill and intangible assets
acquired in business combinations completed before July 1, 2001 will continue to
be amortized during the period prior to January 1, 2002.
SFAS 141 requires that upon adoption of SFAS 142, the Company evaluate its
existing intangible assets and goodwill that were acquired in a prior purchase
business combination, and to make any necessary reclassifications in order to
conform with the new criteria in SFAS 141 for recognition apart from goodwill.
Upon adoption of SFAS 142, the Company will be required to reassess the useful
lives and residual values of all intangible assets acquired in purchase business
combinations, and make any necessary amortization period adjustments by the end
of the first interim period after adoption. In addition, to the extent an
intangible asset is identified as having an indefinite useful life, the Company
will be required to test the intangible asset for impairment within the first
interim period. Any impairment loss will be measured as of the date of adoption
and recognized as the cumulative effect of a change in accounting principle in
the first interim period.
In connection with the transitional goodwill impairment evaluation, SFAS
142 will require the Company to perform an assessment of whether there is an
indication that goodwill is impaired as of the date of adoption. To the extent a
reporting unit's carrying amount (as defined in SFAS 142) exceeds its fair
value, the Company must perform the second step of the transitional impairment
test. In the second step, the Company must compare the implied fair value of the
reporting unit's goodwill, determined by allocating the reporting unit's fair
value to all of it assets (recognized and unrecognized) and liabilities in a
manner similar to a purchase price allocation in accordance with SFAS 141, to
its carrying amount, both of which would be measured as of the date of adoption.
This second step is required to be completed as soon as possible, but no later
than the end of the year of adoption. Any transitional impairment loss will be
recognized as the cumulative effect of a change in accounting principle in the
Company's consolidated statement of operations.
Because of the extensive effort needed to comply with adopting SFAS 141 and
SFAS 142, it is not practicable to reasonably estimate the impact of adopting
these Statements on the Company's consolidated financial statements at the date
of this report, including whether any transitional impairment losses will be
required to be recognized, however, the Company expects that a majority of the
of the amortization of goodwill and purchased intangible assets will not
continue in future periods.
27
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
Quarter Ended June 30, 2001
PART II. Other Information
Item 1. Legal Proceedings
No significant changes have occurred with respect to legal proceedings as
disclosed in Part I, Item 3, of the Company's 2000 Annual Report on Form 10-K.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Stockholders
The Annual Meeting of Stockholders of the Company was held on April 26,
2001 to elect ten directors of the Company, to approve the adoption of an
amendment to the Company's 1997 Incentive Compensation Plan to increase the
number of shares of the Company's Class A Common Stock available for awards
thereunder by two million, and to ratify the appointment of KPMG LLP as
independent auditors for the Company for the fiscal year ending December 31,
2001. The holders of the Company's Class A Common Stock and the Company's Series
A Convertible Preferred Stock at the close of business on February 26, 2001, the
record date for the Annual Meeting, voted together as a single class with
respect to all matters other than the election of the four directors designated
by the holders of the Preferred Stock, Messrs. Peter A. Cohen, Michael S.
Immordino, Luciano La Noce and Roberto Sgambati. The holders of the Preferred
Stock voted as a separate class with respect to the election of such directors.
All matters put before the stockholders were approved as follows:
Director Nominees/ Other Matters For Withheld Against Abstain
-------------------------------- ---------- -------- ------- -------
A. Lorne Weil 50,196,868 2,923,479 -- --
Larry J. Lawrence 50,391,744 2,728,603 -- --
W. Walker Lewis 50,392,293 2,728,054 -- --
Colin J. O'Brien 50,392,324 2,728,023 -- --
Sir Brian G. Wolfson 50,392,273 2,728,074 -- --
Alan J. Zakon 50,392,344 2,728,003 -- --
Peter A. Cohen 1,087,915 * -- -- --
Michael S. Immordino 1,087,915 * -- -- --
Luciano La Noce 1,087,915 * -- -- --
Roberto Sgambati 1,087,915 * -- -- --
Adopt Amendment to the 1997 Incentive Compensation Plan 48,674,475 -- 4,329,689 116,183
Ratification of KPMG LLP 52,501,379 -- 565,484 53,484
* Series A Convertible Preferred Stock
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
Reports on Form 8-K
A current report on Form 8-K was filed on April 30, 2001, regarding the
change in the Company's name, effective April 27, 2001, from Autotote
Corporation to Scientific Games Corporation and the change in its stock exchange
symbol to SGM [AMEX:SGM]. A current report on Form 8-K was filed on April 16,
2001, regarding the first amendment, dated as of March 30, 2001, to the
Company's Amended and Restated Credit Agreement.
28
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
Quarter Ended June 30, 2001
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SCIENTIFIC GAMES CORPORATION
(Registrant)
By: /s/ DeWayne E. Laird
---------------------
Name: DeWayne E. Laird
Title: Vice President & Chief Financial Officer
(principal financial and accounting officer)
Dated: August 14, 2001
29