<PAGE> 1
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 MARCH 31, 2000
-------------------------------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
- ----- OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________________ TO ____________________________
COMMISSION FILE NUMBER 000-22298
----------------
SCIENTIFIC GAMES HOLDINGS CORP.
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3615274
- --------------------------------------------------------------------------------
(STATE OR OTHER JURISDICTION OF (IRS IDENTIFICATION NO.)
EMPLOYER)
1500 BLUEGRASS LAKES PARKWAY, ALPHARETTA, GEORGIA 30004
- -----------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (770) 664-3700
-----------------------------
- --------------------------------------------------------------------------------
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF
CHANGED SINCE LAST REPORT.
1
<PAGE> 2
INDICATE BY CHECK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED 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 ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
INDICATE BY CHECK WHETHER THE REGISTRANT HAS FILED ALL DOCUMENTS AND
REPORTS REQUIRED TO BE FILED BY SECTION 12, 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN
CONFIRMED BY A COURT.
YES NO
------- -------
APPLICABLE ONLY TO CORPORATE ISSUERS:
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE: 11,414,199 SHARES OF
COMMON STOCK, $.001 PAR VALUE PER SHARE, AS OF MAY 11, 2000.
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
Item 1. Consolidated Condensed Financial Statements
Consolidated Condensed Balance Sheets
March 31, 2000 and December 31, 1999.............................4
Consolidated Condensed Statements of Income
Three-month period ended March 31, 2000
and March 31, 1999.................................................5
Consolidated Condensed Statements of Cash Flows
Three-month period ended March 31, 2000
and March 31, 1999.................................................6
Notes to Consolidated Condensed Financial Statements....................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings......................................................15
Item 6. Exhibits and Reports on Form 8-K.......................................15
SIGNATURES.......................................................................15
</TABLE>
3
<PAGE> 4
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SCIENTIFIC GAMES HOLDINGS CORP.
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
March 31, December
2000 1999
--------- --------
ASSETS (unaudited) (1)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .................................... 26,098 14,775
Trade receivables ............................................ 45,118 48,655
Inventories .................................................. 16,705 15,281
Prepaid expenses and other current assets .................... 3,349 2,706
Deferred income tax benefits ................................. 1,074 1,053
-------- --------
Total current assets ........................................... 92,344 82,470
PROPERTY, SYSTEMS AND EQUIPMENT, AT COST:
Land ......................................................... 2,404 2,404
Buildings .................................................... 12,535 12,535
Leasehold improvements ....................................... 2,858 2,367
Production, systems and other equipment ...................... 114,259 112,884
Construction-in-progress ..................................... 19,826 12,089
-------- --------
151,882 142,279
Less accumulated depreciation and amortization ............... (72,278) (69,324)
-------- --------
79,604 72,955
OTHER ASSETS:
Goodwill, net of amortization ................................ 30,392 31,473
Other assets ................................................. 21,873 16,735
-------- --------
224,213 203,633
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................. 14,707 15,912
Accrued liabilities .......................................... 25,972 23,397
Income taxes payable ......................................... 2,216 1,827
-------- --------
Total current liabilities ................................ 42,895 41,136
LONG-TERM LIABILITIES:
Credit Facilities ............................................ 35,307 23,547
Other long-term liabilities .................................. 5,707 5,677
Deferred income taxes payable ................................ 7,966 6,727
Minority interest in consolidated subsidiaries ............... 3,091 3,004
STOCKHOLDERS' EQUITY:
Common stock par value $.001 per share:
shares authorized: 25,750,000;
issued and outstanding shares: 11,923,399 at March
31, 2000 and 11,915,702 at December 31, 1999 ............... 12 12
Additional paid-in capital ................................... 66,126 66,060
Accumulated earnings ......................................... 68,825 66,689
Accumulated other comprehensive income ....................... 2,318 (1,198)
Treasury stock, at cost - 509,200 shares at March 31, 2000 ... (8,034) (8,021)
-------- --------
Total stockholders' equity ............................... 129,247 123,542
-------- --------
224,213 203,633
======== ========
</TABLE>
(1) Derived from audited financial statements
See accompanying notes.
4
<PAGE> 5
SCIENTIFIC GAMES HOLDINGS CORP.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three-month period
ended March 31,
2000 1999
-------- --------
<S> <C> <C>
Revenues ........................................ $ 59,063 $ 52,665
Cost of revenues ................................ 39,643 33,718
-------- --------
19,420 18,947
Selling, general and administrative expenses .... 8,548 6,742
Depreciation and amortization ................... 4,568 4,071
Plant closure costs ............................. 2,517 0
-------- --------
Operating income ................................ 3,787 8,134
Other income (expense):
Interest income ........................... 193 90
Other (expense)/income .................... 8 5
Gain/(loss) on foreign currency ........... (294) 448
Interest expense .......................... 285 167
Minority interest elimination ............. (58) (429)
-------- --------
Income before income taxes ...................... 3,351 8,081
Income tax expense .............................. 1,216 3,075
-------- --------
Net income ...................................... $ 2,135 $ 5,006
======== ========
Basic net income per common share ............... $ 0.19 $ 0.42
======== ========
Diluted net income per common share ............. $ 0.19 $ 0.42
======== ========
Average common shares outstanding - basic ....... 11,411 11,883
Dilutive effect of stock options and
non-vested restricted stock awards .......... 105 113
-------- --------
Average common shares outstanding-diluted ....... 11,516 11,996
======== ========
</TABLE>
See accompanying notes.
5
<PAGE> 6
SCIENTIFIC GAMES HOLDINGS CORP.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three-month period
ended March 31,
2000 1999
-------- --------
<S> <C> <C>
CASH FLOW PROVIDED BY OPERATING ACTIVITIES
Net income ............................................... $ 2,135 $ 5,006
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation ........................................ 3,269 2,826
Amortization of intangibles ......................... 1,299 1,245
Loss (gain) on disposal of property and equipment ... 8 (12)
Stock compensation expense .......................... 16 15
Minority interest ................................... 58 236
Deferred income taxes ............................... (32) 190
Changes in operating assets and liabilities:
Accounts receivable ............................ 3,243 (5,247)
Inventories .................................... (1,449) (373)
Accounts payable ............................... (1,138) (2,622)
Other .......................................... 2,404 7,019
-------- --------
Net cash provided by operating activities ............. 9,813 8,283
CASH FLOWS USED IN INVESTING ACTIVITIES
Proceeds from sales of property and equipment ............ 29 3
Purchases of property, systems and equipment ............. (10,464) (1,849)
-------- --------
Net cash used in investing activities ................. (10,435) (1,846)
CASH FLOWS USED IN FINANCING ACTIVITIES
Borrowings under credit facilities ....................... 18,229 6,064
Payments on credit facilities and other long-term debt ... (6,205) (8,418)
Repurchase of common stock ............................... (13) 0
Proceeds of exercise of common stock options ............. 4 4
-------- --------
Net cash provided by (used in) financing activities ... 12,015 (2,350)
EFFECT OF EXCHANGE RATE CHANGES ON CASH ...................... (70) (1,204)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS .................... 11,323 2,883
CASH AND CASH EQUIVALENTS, beginning of period ............... 14,775 9,270
-------- --------
CASH AND CASH EQUIVALENTS, end of period ..................... $ 26,098 $ 12,153
======== ========
SUPPLEMENTAL CASH FLOWS DISCLOSURE:
Cash paid for interest ................................... $ 182 $ 138
======== ========
</TABLE>
See accompanying notes.
6
<PAGE> 7
SCIENTIFIC GAMES HOLDINGS CORP.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Basis of Presentation
The accompanying unaudited consolidated condensed financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with the
financial statement disclosures contained in the Company's 1999 Annual
Report on Form 10-K for the year ended December 31, 1999. In the
opinion of management, all adjustments considered necessary for a fair
presentation (which were of a normal, recurring nature) have been
included. Operating results for the three month period ended March 31,
2000 are not necessarily indicative of the results that may be expected
for the year ended December 31, 2000. Certain prior period amounts have
been reclassified to conform with the current balance sheet
presentation.
Note 2. Inventories
Inventories consist principally of instant lottery tickets,
materials related to their production and certain electronic components
related to Systems terminals which are valued at the lower of cost
(first-in, first-out method) or market. Inventories consisted of the
following at:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
(In Thousands)
<S> <C> <C>
Finished goods ............... $ 9,857 $ 8,633
Work-in-process .............. 2,426 2,075
Raw materials ................ 4,422 4,573
------- -------
$16,705 $15,281
======= =======
</TABLE>
Note 3. Contingencies
As initially reported in July 1993 and periodically reported
thereafter, the Company's Scientific Games Inc. ("SGI") subsidiary owns
a minority interest in Wintech de Colombia S.A. ("Wintech"), which
formerly operated the Colombian national lottery under contract with
Empresa Colombiana de Recursos para la Salud, S.A. ("Ecosalud"), an
agency of the Colombian government. The contract projected that certain
levels of lottery ticket sales would be attained and provided a penalty
against Wintech, SGI and the other shareholders of Wintech of up to
$5.0 million if such performance levels of lottery ticket sales were
not achieved. In addition, with respect to a further guarantee of
performance under the contract with Ecosalud, SGI delivered to Ecosalud
a $4.0 million bond issued by a Colombian surety, Seguros del Estado
("Seguros"). Wintech started the instant lottery in Colombia, but, due
to difficulties beyond its
7
<PAGE> 8
control, including, among other factors, social and political unrest in
Colombia, frequently interrupted telephone service and power outages,
and competition from another lottery being operated in a province of
Colombia in violation of Wintech's exclusive license from Ecosalud, the
projected sales level was not met for the year ended June 1993. On July
1, 1993, Ecosalud adopted resolutions declaring, among other things,
that the contract was in default and asserted various claims for
compensation and penalties against Wintech, SGI and other shareholders
of Wintech. As the Company has previously disclosed in its filings with
the Commission, litigation is pending in Colombia concerning various
claims among Ecosalud, Wintech and SGI, relating to the termination of
the contracts with Ecosalud (the "Colombian Litigation"). Ecosalud's
claims in the Colombian Litigation were for, among other things,
realization on the full amount of the penalty, plus interest and costs
of the bond.
SGI has consulted with Colombian counsel and been advised that SGI has
various legal defenses to Ecosalud's claims. SGI also has certain cross
indemnities and undertakings from the two other privately held
shareholders of Wintech for their respective shares of any liability to
Ecosalud. That obligation is secured in part by a $1.5 million
confirmed letter of credit in favor of SGI.
The Colombian surety, which issued a $4.0 million bond to Ecosalud
under the contract, paid $2.4 to Ecosalud under the bond, and made
demand upon SGI for that amount under the indemnity agreement entered
into by the surety and SGI. SGI declined to make or authorize any such
payment and notified the surety that any payment in response to
Ecosalud's demand on the bond was at the surety's risk. No assurance
can be given that the other shareholders of Wintech will, or have
sufficient assets to, honor their indemnity undertakings to SGI when
the claims by Ecosalud against SGI and Wintech are finally resolved, in
the event such claims result in any final liability.
On April 2, 1998, Seguros brought suit against SGI in the United States
District Court for the Northern District of Georgia, Atlanta Division,
Civil Action No. 1:98-CV-968-CAM. The plaintiff sought $2.4 million for
sums paid by Seguros to Ecosalud under the surety bond on November 1,
1994, plus interest at the Colombian bank rate of interest. SGI filed a
motion to dismiss based on the Colombian statute of limitations of two
years and, alternatively, sought that the case be dismissed on other
grounds. Seguros filed a motion for summary judgment with the Court on
May 6, 1998 seeking summary judgment on its claim in the amount of $2.4
million, plus interest.
On September 29, 1999, the District Court issued an order in which it
denied various motions of SGI, including a motion to dismiss, and
granted Seguros' motion for summary judgment. On September 29, 1999,
the District Court also entered judgment for Seguros in the amount of
$2.4 million or the equivalent in Colombian pesos as of the judgment
date, plus pre-judgment interest at a rate of 38.76% per annum,
equivalent to approximately $4.6 million.
SGI has appealed the matters covered by the District Court's order and
judgment. SGI has posted an appeal bond in the amount of $7 million
through its existing bonding arrangements. SGI continues to believe
that it has meritorious defenses, including that the amount paid by
Seguros was improperly paid because of the default by Ecosalud of its
8
<PAGE> 9
obligations to SGI, which claims remain the subject of separate
litigation in Colombia.
In addition to vigorously prosecuting its appeal of the District
Court's order and judgment, SGI continues to vigorously defend the
Colombian litigation and has been advised by counsel that SGI has
various defenses on the merits as well as procedural defenses to the
litigation (which it has asserted). Nevertheless, it is not possible to
determine the exact/ultimate outcome of the appeal of the order and
judgment granted to Seguros or the outcome of any litigation in
Colombia. While it is not feasible to predict or determine the final
outcome of these proceedings, management, based on the knowledge of the
related facts and circumstances, believes that any potential losses
will not result in a materially adverse effect on the Company's
financial position, results of operations, liquidity or capital
resources.
Note 4. Comprehensive Income
Total comprehensive income was $5.7 million for three-month
period ended March 31, 2000 and $4.8 million the three-month period
ended March 31, 1999.
Note 5. Credit Facilities
The Company has two credit facilities, an $80 million
revolving credit facility with four banks which expires November 30,
2002 and a $25 million revolving 364-day credit facility with a single
bank that expires on November 29, 2000. (Refer to the Company's 10-K
for the year ended December 31, 1999 for a description of the Company's
credit facilities). Net borrowings under the credit facilities were
$35.3 million at March 31, 2000.
Note 6. Segment Information
<TABLE>
<CAPTION>
THREE MONTH PERIOD
ENDED MARCH 31
(In thousands) 2000 1999
---------------------------
<S> <C> <C>
Revenue from external customers:
Instant Ticket and Related Services $ 52,560 $ 40,756
Intersegment Revenue (1,908) (1,669)
Systems 6,402 11,893
Intersegment Revenue 1,908 1,669
Corporate 101 16
---------------------------
Total revenue from external customers $ 59,063 $ 52,665
===========================
Operating income
Instant Ticket and Related Services $ 9,666 $ 7,875
Systems (3,034) 2,924
Corporate (2,845) (2,665)
---------------------------
Total operating income 3,787 8,134
Interest income (expense), net (92) (77)
Other (344) 24
---------------------------
Income before income tax $ 3,351 $ 8,081
===========================
</TABLE>
9
<PAGE> 10
Note 7. Plant Closure
On January 28, 2000, the Company announced plans to consolidate its
printing operations by expanding its Alpharetta, Georgia facility and
closing its instant ticket printing operation in Gilroy, California.
The severance and stay incentive plan was announced to the employees on
January 27, 2000. A total of $2.5 million in closure costs were
expensed in the quarter ended March 31, 2000 of which $2.5 million was
reserved in accrued liabilities at March 31, 2000. These costs
consisted of severance, stay incentives, lease termination and asset
write-downs. There are approximately 130 employees that will be
terminated including both production and support employees at the
plant. The plant is expected to close on or about July 31, 2000. No
charges were taken against the reserve during the quarter ended March
31, 2000.
10
<PAGE> 11
SCIENTIFIC GAMES HOLDINGS CORP.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
GENERAL
Our revenues are generated primarily from sales of our products and
services to governmentally operated or sanctioned lotteries worldwide and, to a
lesser extent, non-lottery related entities both in the United States and
worldwide. We categorize our sales into two main segments: (1) Instant Ticket
and Related Services and (2) Systems.
In the Instant Ticket and Related Services segment, we primarily supply
game design, sales and marketing support, instant ticket manufacturing and
delivery, inventory management and distribution, and retailer telemarketing and
field services to our customers. In addition, this segment includes promotional
instant tickets and pull-tab tickets that we sell to both lottery and
non-lottery customers and prepaid phone cards sold to telecommunications
companies.
In the Systems segment, we primarily supply transaction processing
software that accommodates instant ticket accounting and validation and on-line
lottery games, point-of-sale terminal hardware which connects to these systems,
central site computers and communication hardware which run these systems, and
ongoing support and maintenance services for these products. This segment also
includes software, hardware and support for sports betting and credit card
processing systems.
Instant Ticket and Related Services revenues are generally based on a
price per 1,000 tickets delivered or based upon a percentage of the lottery's
sales to the public over a contract period. Systems revenues may be based on a
fixed price for the product or service or based upon a percentage of the
lottery's sales to the public over a contract period.
For the period January 1, 2000 through March 31, 2000, we have:
- received an extension on our current Instant Ticket and
Related Services contracts with the Kentucky Lottery
Corporation through September, 2002.
- been awarded a new three-year contract, with an option for an
additional three-year extension, to provide Instant Tickets
and Related Services to the Washington State Lottery.
- been awarded a new four-year contract, with an option for an
additional one-year extension, to provide Instant Tickets and
Related Services to the Colorado Lottery.
- been awarded a new two-year secondary supply contract, with an
option for three additional one-year extensions, to provide
Instant Tickets and Related Services to the Minnesota Lottery.
11
<PAGE> 12
RESULTS OF OPERATIONS
Three-month period ended March 31, 2000 compared to three-month period ended
March 31, 1999.
Revenues for the three-month period ended March 31, 2000 increased $6.4
million, or 12.1%, over the revenues for the three-month period ended March 31,
1999. The increase was primarily due to increased Instant Tickets and Related
Services revenues of approximately $11.6 million, which represented a 29.6%
increase for the segment. This increase was mostly due to an $8.3 million
increase in sales of international pre-paid telephone cards, which represented a
286% increase over same period last year for this product. Partially offsetting
this increase for the period was a $5.2 million decrease in revenues from the
Systems segment due to lower sales of new systems to international customers.
Instant Ticket and Related Services revenues accounted for approximately 85.8%
and 74.2% of our total revenues for the three-month periods ended March 31, 2000
and 1999, respectively.
On a comparative basis, gross margin increased $473,000, or 2.5%, while
gross margin as a percentage of revenues decreased to 32.9% from 36.0% for the
periods ended March 31, 2000 and 1999, respectively. The dollar margin increase
was primarily due to the increased sales volumes of pre-paid telephone cards.
The percentage margin decline was mainly attributable to lower equivalent sales
prices charged on certain instant ticket lottery contracts awarded or extended
and a decrease in Systems sales, offset in part by continued efficiency
improvements and additional sales of pre-paid telephone cards. The lower
equivalent sales prices were a result of competitive pricing pressures in the
lottery industry.
Selling, general and administrative (SG&A) expenses increased $1.8
million, or 26.8%, for the period ended March 31, 2000 over the same period of
1999. SG&A expenses increased as a percentage of revenues to 14.5% from 12.8%.
The increase was due primarily to severance costs related to a management
re-organization and higher selling, general and administrative expenses required
to support increased sales activity in new and existing markets, including
pre-paid telephone cards.
Depreciation and amortization expense increased for the three-month
period ended March 31, 2000 by $497,000 or 12.2% over the comparable period of
1999 due primarily to additional depreciation expenses from capital expenditures
to support the growth in pre-paid telephone demand and for new Instant Ticket
and Related Services operations.
The one-time plant closure costs of $2.5 million recorded during the
current quarter are for the planned closure of our instant ticket manufacturing
facility in Gilroy, California. This closure became necessary due to our
decision to consolidate U.S. based production in our Alpharetta, Georgia
facility, which is being expanded to accommodate a state-of-the-art printing
press. Once operational, we believe this consolidation and equipment upgrade
will produce cost savings as well as increase our production capabilities.
Interest income for the three-month period ended March 31, 2000
increased $103,000, or 114.4%, compared to the three-month period ended March
31, 1999. The increase was attributable to higher average cash and cash
equivalents balances in the current period than in the same comparable period of
1999.
12
<PAGE> 13
Gain/(loss) on foreign currency for the three-month period ended March
31, 2000 resulted in a loss of $294,000 compared with a gain of $448,000 for the
same period in 1999. The loss primarily resulted from the negative exchange rate
effect of the strengthening U.S. dollar on certain assets denominated in foreign
currency.
Interest expense for the three-month period ended March 31, 2000
increased $118,000 from the three-month period ended March 31, 1999. The
increase was primarily due to an increase in the average balance outstanding
under one of our credit facilities compared to the prior period.
The effective income tax rate for the three-month ended March 31, 2000
was 36.3% as compared to 38.1% for the three-month period ended March 31, 1999.
The lower effective tax rate was primarily the result of adjustments to tax
liabilities, due to the favorable resolution of certain contingencies.
As a result of the foregoing, net income for the three-month period
ended March 31, 2000 was $2.1 million compared to $5.0 million for the period
ended March 31, 1999. The decrease in net income of $2.9 million was due
primarily to the one-time plant closing costs, severance costs, and competitive
pricing pressures discussed above. Net income without the one-time plant closing
and severance costs would have been $4.1 million.
Earnings per common share (diluted) for the three-month period ended
March 31, 2000 were $0.19 compared to $0.42 for the comparable period in 1999.
The decrease in earnings per common share was primarily due to the one-time
plant closing costs, severance costs, and competitive pricing pressures.
Partially offsetting the decrease was a reduction in the weighted average number
of common equivalent shares outstanding, resulting from our repurchase of shares
of our common stock during 1999. Earnings per common share without the one-time
plant closing and severance costs would have been $.36.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents balance increased by
approximately $11.3 million during the three-month period ended March 31, 2000,
primarily through net borrowings under one of our credit facilities.
For the three-month period ended March 31, 2000, net cash provided by
operating activities increased by $1.5 million to $9.8 million from $8.3 million
for the comparable period in 1999. The primary contributions to cash from
operating activities during the period were net income and depreciation and
amortization.
Net cash used in investing activities for the three-month period ended
March 31, 2000 increased to $10.4 million from $1.8 million for the same period
in the prior year. These investments were mostly in property and equipment for
our Alpharetta, Georgia and Leeds, England operations and primarily related to
consolidation and expansion projects that were begun in 1999 and which will
continue through the fourth quarter of 2000.
13
<PAGE> 14
The Company's financing activities generated cash of $12.0 million for
the three-month period ended March 31, 2000 and used cash of $2.4 million in the
three-month period ended March 31, 1999. As a result of a net increase in
borrowings for anticipated future capital expenditure requirements during the
current quarter, the balance outstanding under one of our credit facilities at
March 31, 2000 was $35.3 million.
While we estimate we will spend over $45 million in capital
expenditures in the current year, we believe that the availability of funds
under our credit facilities, cash flows from operations and our ability to
obtain alternative sources of financing will permit us to fund our operations,
working capital requirements and obligations, as well as other potential
investment or business opportunities. In the event we have additional capital
requirements for new business opportunities, we believe we have the ability to
obtain additional capital from the capital markets.
IMPACT OF YEAR 2000
Refer to the Company's Form 10-K for the year ended December 31, 1999
for a description of the Company's Year 2000 ("Y2K") program, estimated Y2K
costs and contingency planning, with respect to which there have been no further
developments.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain statements and
projections (including statements concerning plans and objectives of management
for future operations and services and statements concerning revenue
expectations), other than those covering historical information, that should be
considered forward-looking and subject to certain risks and uncertainties. Such
forward-looking statements are based on management's belief as well as
assumptions made by, and information currently available to, management pursuant
to "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. The Company's actual results may differ materially from the plans
envisioned in, or results projected by, those statements if the Company's
assumptions prove to be incorrect or for a variety of other reasons, including
those relating to factors identified in the Company's Annual Report on Form 10-K
for the year ended December 31, 1999 as part of a Cautionary Statement for
purposes of such safe harbor. The Company cautions that such factors are not
exclusive. The Company does not undertake to update any forward-looking
statement that may be made from time to time by, or on behalf of, the Company.
14
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Refer to the Company's Form 10-K for the year-ended December 31, 1999
for a description of pending legal proceedings, with respect to which
there have been no further developments.
ITEMS 2,3,4 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
#27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
March 31, 2000.
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 HOLDINGS CORP.
Date: May 12, 2000 By: /s/WILLIAM G. MALLOY
--------------------------------------
William G. Malloy
President and
Chief Executive Officer
Date: May 12, 2000 By: /s/CLIFF O. BICKELL
--------------------------------------
Cliff O. Bickell
Vice President, Treasurer,
and Chief Financial Officer
15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 26,098
<SECURITIES> 0
<RECEIVABLES> 45,118
<ALLOWANCES> 0
<INVENTORY> 16,705
<CURRENT-ASSETS> 92,344
<PP&E> 151,882
<DEPRECIATION> 72,278
<TOTAL-ASSETS> 224,213
<CURRENT-LIABILITIES> 42,895
<BONDS> 0
0
0
<COMMON> 12
<OTHER-SE> 129,235
<TOTAL-LIABILITY-AND-EQUITY> 224,213
<SALES> 59,063
<TOTAL-REVENUES> 59,063
<CGS> 39,643
<TOTAL-COSTS> 39,643
<OTHER-EXPENSES> 8,548
<LOSS-PROVISION> 100
<INTEREST-EXPENSE> 285
<INCOME-PRETAX> 3,351
<INCOME-TAX> 1,216
<INCOME-CONTINUING> 2,135
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,135
<EPS-BASIC> .19
<EPS-DILUTED> .19
</TABLE>
