<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------
FORM 11-K
ANNUAL REPORT
PURSUANT TO SECTION 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
DELAWARE 000-22298 13-3615274
(STATE OR OTHER JURISDICTION OF (COMMISSION (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) FILE NUMBER) IDENTIFICATION NO.)
</TABLE>
FULL TITLE OF PLAN (IF DIFFERENT FROM ISSUER NAMED BELOW):
SCIENTIFIC GAMES INC. SAVINGS AND INVESTMENT PLAN
FULL TITLE OF ISSUER OF SECURITIES HELD PURSUANT TO THE PLAN
AND ADDRESS OF EXECUTIVE OFFICE:
SCIENTIFIC GAMES HOLDINGS CORP.
1500 BLUEGRASS LAKES PARKWAY
ALPHARETTA, GEORGIA 30004
(770) 664-3700
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<PAGE> 2
EXHIBIT INDEX
<TABLE>
<S> <C>
13 Annual Report to Security-Holders and Supplemental Schedules
23 Consent of Independent Auditors
</TABLE>
<PAGE> 3
SIGNATURES
Scientific Games Inc. Savings and Investment Plan.
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 hereunto duly authorized.
Scientific Games Inc. Savings and
Investment Plan
SCIENTIFIC GAMES HOLDINGS CORP.
Date: June 29, 1998 By: /s/ Cliff O. Bickell
---------------------------------------
Cliff O. Bickell
Vice President, Treasurer,
and Chief Financial Officer
<PAGE> 1
EXHIBIT 13
Audited Financial Statements
and Supplemental Schedules
Scientific Games Inc.
Savings and Investment Plan
Years ended December 31, 1997 and 1996
with Report of Independent Auditors
<PAGE> 2
Scientific Games Inc. Savings and Investment Plan
Audited Financial Statements and Supplemental Schedules
Years ended December 31, 1997 and 1996
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors.........................................................................1
Financial Statements
Statements of Net Assets Available for Benefits........................................................2
Statements of Changes in Net Assets Available
for Benefits........................................................................................3
Notes to Financial Statements..........................................................................4
Supplemental Schedules
Line 27a - Schedule of Assets Held for Investment Purposes............................................14
Line 27d - Schedule of Reportable Transactions........................................................15
</TABLE>
<PAGE> 3
Report of Independent Auditors
The Board of Directors
Scientific Games Inc.
Savings and Investment Plan
We have audited the accompanying statements of net assets available for benefits
of Scientific Games Inc. Savings and Investment Plan (the "Plan") as of December
31, 1997 and 1996, and the related statements of changes in net assets available
for benefits for the years then ended. These financial statements are the
responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan at
December 31, 1997 and 1996, and the changes in net assets available for benefits
for the years then ended, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplemental schedule of
assets held for investment purposes as of December 31, 1997, and schedule of
reportable transactions for the year then ended, are presented for purposes of
complying with the Department of Labor's Rules and Regulations for Reporting and
Disclosure under the Employee Retirement Income Security Act of 1974, and are
not a required part of the basic financial statements. The supplemental
schedules are the responsibility of the Plan's management. The supplemental
schedules have been subjected to the auditing procedures applied in our audit of
the 1997 financial statements and, in our opinion, are fairly stated in all
material respects in relation to the 1997 basic financial statements taken as a
whole.
/s/ Ernst & Young LLP
June 11, 1998
Atlanta, Georgia
<PAGE> 4
Scientific Games Inc. Savings and Investment Plan
Statements of Net Assets Available for Plan Benefits
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
----------------------------------------
<S> <C> <C>
ASSETS
Investments, at fair value $10,572,310 $8,012,516
Employer contribution receivable -- 14,346
Participants' contribution receivable -- 85,937
----------------------------------------
10,572,310 8,112,799
Loans to participants 432,263 332,423
----------------------------------------
Total assets 11,004,573 8,445,222
----------------------------------------
Net assets available for plan benefits $11,004,573 $8,445,222
========================================
</TABLE>
See accompanying notes.
2
<PAGE> 5
Scientific Games Inc. Savings and Investment Plan
Statements of Changes in Net Assets Available for Plan Benefits
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996
----------------------------------
<S> <C> <C>
Additions:
Employer contributions $ 320,758 $ 321,094
Participants' contributions 1,665,637 1,344,726
Investment income 558,228 513,124
Interest on loans 36,871 26,707
----------------------------------
2,581,494 2,205,651
Deductions:
Benefits to participants 434,636 380,520
----------------------------------
Net additions 2,146,858 1,825,131
Net realized and unrealized appreciation in fair value of
investments 412,493 215,845
----------------------------------
Net increase in assets 2,559,351 2,040,976
Net assets available for plan benefits at beginning of year
8,445,222 6,404,246
----------------------------------
Net assets available for plan benefits at end of year $ 11,004,573 $ 8,445,222
==================================
</TABLE>
See accompanying notes.
3
<PAGE> 6
Scientific Games Inc. Savings and Investment Plan
Notes to Financial Statements
December 31, 1997
1. SUMMARY OF ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The financial statements of the Plan are prepared under the accrual method of
accounting.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Plan to significant
concentrations of credit risk consist principally of commingled investment
funds.
The trustee maintains financial instruments within commingled investment funds
with various financial institutions. The trustee's policy is designed to limit
exposure at any one institution. The trustee performs periodic evaluations of
the relative credit strategy of those financial institutions which are
considered in the fund's investment strategy.
INVESTMENT VALUATION AND INCOME RECOGNITION
The Plan's investments are stated at fair value. Shares of registered investment
companies are valued at quoted market prices which represent the net asset value
of shares held by the Plan at year-end. The Company stock is valued at its
quoted market price. Participant loans are valued at cost which approximates
fair value.
Purchases and sales of securities are recorded on a trade-date basis. Interest
income is recorded on the accrual basis. Dividends are recorded on the
ex-dividend date.
4
<PAGE> 7
Scientific Games Inc. Savings and Investment Plan
Notes to Financial Statements (continued)
1. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
PAYMENT OF BENEFITS
Benefits are recorded when paid.
ADMINISTRATIVE EXPENSES
Loan fees are charged to plan participants. Effective January 1, 1996, the
Company pays all administrative expenses of the Plan. Expenses of administering
the Plan prior to 1996 were paid by the Plan.
2. DESCRIPTION OF THE PLAN
GENERAL
The following description of the Scientific Games Inc. (the "Company") Savings
and Investment Plan ( the "Plan") provides only general information.
Participants should refer to the Summary Plan Description for a more complete
description of the Plan's provisions.
The Plan is a defined contribution thrift and investment plan under Section
401(k) of the Internal Revenue Code covering all full-time employees of the
Company who have completed six months of participation service and are age
twenty-one or older. It is subject to the provisions of the Employee Retirement
Income Security Act of 1974 (ERISA).
5
<PAGE> 8
Scientific Games Inc. Savings and Investment Plan
Notes to Financial Statements (continued)
2. DESCRIPTION OF THE PLAN (CONTINUED)
CONTRIBUTIONS
Participation in the Plan is voluntary. Participants can contribute up to 6% of
their earnings to the Plan in the form of Basic Contributions. Additionally, if
the maximum Basic Contribution is chosen, the Participant can contribute up to
an additional 9% of their earnings to the Plan in the form of Supplemental
Contributions providing that the annual deferral percentage rules of Internal
Revenue Code Section 401(k) are not exceeded. The Company contributes to the
Plan an amount equal to 33 1/3% of the employees' Basic Contributions. Effective
January 1, 1996, all employer contributions were made in the form of common
stock of the Company's parent, Scientific Games Holdings Corp. Additional
amounts may be contributed at the discretion of the Company's board of
directors.
PARTICIPANT ACCOUNTS
Each participant's account is credited with the participant's contribution and
allocations of the Company's contribution and plan earnings. Allocations are
based on participant earnings or account balances, as defined. The benefit to
which a participant is entitled is the benefit that can be provided from the
participant's vested account.
INVESTMENT OPTIONS
Upon enrollment in the Plan, a participant may direct employee contributions in
any of six investment alternatives, including a Scientific Games Holdings Corp.
stock fund which is used for the Company contribution.
VESTING
Employee contributions and matching employer contributions are fully vested and
non-forfeitable at all times. Vested benefits of terminated participants are
distributed as a lump sum or in periodic payments, as elected by the
participant. Termination of the Plan, should this occur, would not reduce the
vested interests of participants.
6
<PAGE> 9
Scientific Games Inc. Savings and Investment Plan
Notes to Financial Statements (continued)
2. DESCRIPTION OF THE PLAN (CONTINUED)
PARTICIPANT LOANS
Participants may borrow from their fund accounts a minimum of $1,000 up to a
maximum equal to the lesser of $50,000 or 50% of their account balance. All
loans made to eligible participants are secured by the total vested balance of
the participant's account and bear interest at a rate commensurate with local
prevailing rates as determined by the Plan administrator. Interest rates on
loans outstanding at December 31, 1997 range from 7.0% to 10.0%. Principal and
interest is paid ratably through payroll deductions over periods generally
ranging from 5 to 15 years.
PAYMENT OF BENEFITS
On termination of service due to death, disability, or retirement, a participant
may elect to receive either a lump-sum amount equal to the value of the
participant's vested interest in his or her account, or annual installments. For
termination of service due to other reasons, a participant may receive the value
of the vested interest in his or her account as a lump-sum distribution.
7
<PAGE> 10
Scientific Games Inc. Savings and Investment Plan
Notes to Financial Statements (continued)
3. INVESTMENTS
The Plan's investments are held by a trust fund and are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
----------------------------------------
<S> <C> <C>
Fair value of individual investments that represent
5 percent or more of the Plan's total assets are as follows
(fair value as determined by quoted market price - shares of
registered investment companies):
Equity Income Common Stock Fund (155,477 units and
115,450 units, respectively) $4,053,278 $2,602,246
New Horizons Common Stock Fund (140,827 units and
116,734 units, respectively) 3,281,259 2,541,290
Stable Value Common Trust Fund (1,033,173 units and
890,048 units, respectively) 1,033,173 890,048
Scientific Games Holdings Corp. stock fund (51,948
shares and 38,764 shares, respectively) 1,051,939 1,036,929
Spectrum Income Fund (82,676 units and 76,111 units,
respectively) 964,005 852,443
----------------------------------------
10,383,654 7,922,956
Other investments, at estimated fair value, which are less
than 5% of the Plan's total assets are as follows:
Participant loans 432,263 332,423
International Stock Fund 188,656 89,560
----------------------------------------
Total investments, at fair value $11,004,573 $8,344,939
========================================
</TABLE>
8
<PAGE> 11
Scientific Games Inc. Savings and Investment Plan
Notes to Financial Statements (continued)
4. CHANGES IN NET ASSETS IN INVESTMENT FUNDS
The Plan provides for separate investment funds for participants. The Plan also
maintains a Loan Fund in connection with its lending activities.
Below is a summary of the changes in the net assets of these funds for the year
ended December 31, 1997.
<TABLE>
<CAPTION>
T. ROWE PRICE FUNDS
-------------------------------------------------------------------------
SCIENTIFIC GAMES EQUITY NEW STABLE VALUE INTER-
HOLDINGS CORP. INCOME HORIZONS COMMON TRUST SPECTRUM NATIONAL
STOCK FUND FUND FUND FUND FUNDS STOCK FUND
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Additions:
Employer contributions $ 334,044 $ 418 $ 412 $ 46 $ 89 $ 95
Participants' contributions 132,895 619,959 664,852 138,066 137,908 57,894
Investment income (loss) (55,167) 436,549 97,850 61,212 80,187 11,339
Repayment of loans 30,190 38,442 63,246 10,223 14,299 4,872
------------------------------------------------------------------------------------------
441,962 1,095,368 826,360 209,547 232,483 74,200
Deductions:
Benefits to participants 41,967 146,254 169,267 33,746 40,703 4,508
Loan disbursements 32,790 80,428 118,998 39,191 22,894 1,873
------------------------------------------------------------------------------------------
74,757 226,682 288,265 72,937 63,597 6,381
Interfund transfers (140,123) 177,275 2,653 6,515 (87,774) 41,454
Net realized and unrealized appreciation
(depreciation) in fair value of
investments (212,072) 405,071 199,221 - 30,450 (10,177)
------------------------------------------------------------------------------------------
Net increase (decrease) in assets 15,010 1,451,032 739,969 143,125 111,562 99,096
Net assets available for benefits at
beginning of year 1,036,929 2,602,246 2,541,290 890,048 852,443 89,560
------------------------------------------------------------------------------------------
Net assets available for benefits at end
of year $ 1,051,939 $ 4,053,278 $ 3,281,259 $ 1,033,173 $ 964,005 $ 188,656
==========================================================================================
<CAPTION>
LOAN
FUND ACCRUALS TOTAL
------------------------------------------
<S> <C> <C> <C>
Additions:
Employer contributions $ - $ (14,346) $ 320,758
Participants' contributions - (85,937) 1,665,637
Investment income (loss) (36,871) - 595,099
Repayment of loans (161,272) - -
-----------------------------------------
(198,143) (100,283) 2,581,494
Deductions:
Benefits to participants (1,809) - 434,636
Loan disbursements (296,174) - -
-----------------------------------------
(297,983) - 434,636
Interfund transfers - - -
Net realized and unrealized appreciation
(depreciation) in fair value of
investments - - 412,493
-----------------------------------------
Net increase (decrease) in assets 99,840 (100,283) 2,559,351
Net assets available for benefits at
beginning of year 332,423 100,283 8,445,222
=========================================
Net assets available for benefits at end
of year $ 432,263 $ - $11,004,573
=========================================
</TABLE>
At December 31, 1997 and 1996, there were no account balances allocated to
persons who have withdrawn from participation in the earnings and operations of
the Plan.
9
<PAGE> 12
Scientific Games Inc. Savings and Investment Plan
Notes to Financial Statements (continued)
4. CHANGES IN NET ASSETS IN INVESTMENT FUNDS (CONTINUED)
Below is a summary of the changes in the net assets of these funds for the year
ended December 31, 1996.
<TABLE>
<CAPTION>
T. ROWE PRICE FUNDS
-----------------------------------------------------------------------------------------------
SCIENTIFIC STABLE
GAMES HOLDINGS EQUITY NEW NEW VALUE COMMON
CORP. STOCK INCOME HORIZONS INCOME BOND TRUST SPECTRUM
FUND FUND FUND FUND FUND FUNDS
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Additions:
Employer contributions $ 306,748 $ - $ - $ - $ - $ -
Participants' contributions 65,416 360,983 529,166 56,511 132,606 90,952
Investment income 6,029 168,726 241,100 20,070 54,969 45,987
Repayment of loans 31,930 18,994 30,095 1,776 10,271 7,546
-----------------------------------------------------------------------------------------------
410,123 548,703 800,361 78,357 197,846 144,485
Deductions:
Benefits to participants 20,469 119,684 155,055 13,302 33,982 14,603
Loan disbursements 37,433 34,775 76,548 2,400 34,074 7,381
-----------------------------------------------------------------------------------------------
57,902 154,459 231,603 15,702 68,056 21,984
Interfund transfers 798,362 (223,752) (273,605) (892,321) (184,102) 714,921
Net realized and unrealized
appreciation (depreciation) in
fair value of investments (113,654) 231,050 82,374 2,068 (4,531) 15,021
-----------------------------------------------------------------------------------------------
Net increase (decrease) in assets 1,036,929 401,542 377,527 (827,598) (58,843) 852,443
Net assets available for benefits
at beginning of year - 2,200,704 2,163,763 827,598 948,891 -
-----------------------------------------------------------------------------------------------
Net assets available for benefits
at end of year $ 1,036,929 $ 2,602,246 $ 2,541,290 $ - $ 890,048 $ 852,443
===============================================================================================
<CAPTION>
T. ROWE PRICE FUNDS
-------------------------------------------------------
INTER-
NATIONAL STOCK LOAN
FUND FUND ACCRUALS TOTAL
-------------------------------------------------------
<S> <C> <C> <C> <C>
Additions:
Employer contributions $ - $ - $ 14,346 $ 321,094
Participants' contributions 23,155 - 85,937 1,344,726
Investment income 2,950 - - 539,831
Repayment of loans 357 (100,969) - -
-------------------------------------------------------
26,462 (100,969) 100,283 2,205,651
Deductions:
Benefits to participants 916 22,509 - 380,520
Loan disbursements - (192,611) - -
-------------------------------------------------------
916 (170,102) - 380,520
Interfund transfers 60,497 - - -
Net realized and unrealized
appreciation (depreciation) in
fair value of investments 3,517 - - 215,845
-------------------------------------------------------
Net increase (decrease) in assets 89,560 69,133 100,283 2,040,976
Net assets available for benefits
at beginning of year - 263,290 - 6,404,246
-------------------------------------------------------
Net assets available for benefits
at end of year $ 89,560 $ 332,423 $ 100,283 $ 8,445,222
=======================================================
</TABLE>
10
<PAGE> 13
Scientific Games Inc. Savings and Investment Plan
Notes to Financial Statements (continued)
5. PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the right
under the Plan to discontinue its contributions at any time and to terminate the
Plan subject to the provisions of ERISA. In the event of Plan termination,
participants will become fully vested in their accounts.
6. PARTY-IN-INTEREST TRANSACTIONS
Certain Plan investments are shares of mutual funds managed by T. Rowe Price
Associates, Inc. T. Rowe Price Associates, Inc. is the trustee as defined by the
plan and, therefore, these transactions qualify as party-in-interest
transactions. At December 31, 1997, the fair value of T. Rowe Price Associates,
Inc. managed mutual funds owned by the Plan totaled approximately $9,520,000, or
86% of the Plan's total assets.
7. INCOME TAX STATUS
The Internal Revenue Service ruled on November 25, 1994 that the Plan qualifies
under Section 401(a) of the Internal Revenue Code (IRC) and the related trust
is, therefore, not subject to tax under present income tax law. The Plan has
been amended since receiving the determination letter. The Plan is required to
operate in conformity with the IRC to maintain its qualification. The
Administrative Committee is not aware of any course of action or series of
events that might adversely affect the Plan's qualified status.
The Company is completing its compliance testing in evaluating the Plan for
compliance with the IRC qualification requirements. Upon completion of the
evaluation, the Company intends to address any deviations from the IRC
qualification requirements that may have occurred. Corrective action, to the
extent necessary, will be taken with respect to these issues. Based on the
information currently available, the Company does not believe that the results
of the evaluation will have a material adverse effect on the financial condition
or qualified status of the Plan.
11
<PAGE> 14
Scientific Games Inc. Savings and Investment Plan
Notes to Financial Statements (continued)
8. YEAR 2000 ISSUE (UNAUDITED)
The Plan Sponsor has developed a plan to modify its internal information
technology to be ready for the year 2000 and has begun converting critical data
processing systems. The project also includes determining whether third party
service providers have reasonable plans in place to become year 2000 compliant.
The Plan Sponsor currently expects the project to be substantially complete by
early 1999. The Plan Sponsor does not expect this project to have a significant
effect on plan operations.
12
<PAGE> 15
EXHIBIT 13.1
SUPPLEMENTAL SCHEDULES
<PAGE> 16
Scientific Games Inc. Savings and Investment Plan
EIN: 58-1943521
Plan #: 001
Line 27a - Schedule of Assets Held for Investment Purposes
December 31, 1997
<TABLE>
<CAPTION>
DESCRIPTION OF INVESTMENT,
INCLUDING MATURITY DATE,
IDENTITY OF ISSUE, BORROWER, RATE OF INTEREST, PAR OR CURRENT
LESSOR OR SIMILAR PARTY MATURITY VALUE COST VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
* T. Rowe Price Associates, Inc. Equity Income Stock Fund, Inc. $3,397,614 $4,053,278
* T. Rowe Price Associates, Inc. New Horizons Fund 3,008,194 3,281,259
* T. Rowe Price Associates, Inc. Spectrum Funds 918,699 964,005
* T. Rowe Price Associates, Inc. Stable Value Common Trust Fund 1,033,173 1,033,173
* T. Rowe Price Associates, Inc. International Stock Fund 195,358 188,656
* Scientific Games Holdings Common Stock 1,366,090 1,051,939
Corp. Stock Fund
Participant loans 153 loans, interest rates ranging from
7-10%, maturing over 60 months
- 432,263
--------------------------------------
$9,919,128 $11,004,573
======================================
</TABLE>
* Indicates a party-in-interest to the Plan.
14
<PAGE> 17
Scientific Games Inc. Savings and Investment Plan
EIN: 58-1943521
Plan #: 001
Line 27d - Schedule of Reportable Transactions
Year ended December 31, 1997
<TABLE>
<CAPTION>
CURRENT VALUE
OF ASSET ON NET
PURCHASE SELLING COST TRANSACTION GAIN
IDENTITY OF PARTY INVOLVED DESCRIPTION OF ASSET PRICE PRICE OF ASSETS DATE (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CATEGORY (III) - SERIES OF TRANSACTIONS IN EXCESS OF 5% OF PLAN ASSETS.
T. Rowe Price Associates, Inc. Equity Income Fund $ 1,272,887 $ - $ 1,272,887 $ 1,272,887 $ -
T. Rowe Price Associates, Inc. Equity Income Fund - 266,231 235,471 266,231 30,760
T. Rowe Price Associates, Inc. New Horizons Fund 916,083 - 916,083 916,083 -
T. Rowe Price Associates, Inc. New Horizons Fund - 377,258 379,474 377,258 (2,216)
T. Rowe Price Associates, Inc. Scientific Games Inc. Holdings
Corp. Stock Fund 481,575 - 481,575 481,575 -
T. Rowe Price Associates, Inc. Scientific Games Inc. Holdings
Corp. Stock Fund - 193,545 250,116 193,545 (56,571)
</TABLE>
THERE WERE NO CATEGORY (I), (II) OR (IV) TRANSACTIONS DURING THE YEAR ENDED
DECEMBER 31, 1997.
15
<PAGE> 1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-3034) pertaining to the Scientific Games Inc. Savings and
Investment Plan of our report dated June 11, 1998, with respect to the
financial statements and schedules of the Scientific Games Inc. Savings
Investment Plan included in this Annual Report (Form 11-K) for the year ended
December 31, 1997.
Atlanta, Georgia
June 29, 1998
