Scientific Games Corp (SGMS, Financial) filed Quarterly Report for the period ended 2012-06-30.
Scientific Games Corp has a market cap of $797 million; its shares were traded at around $6.92 with a P/E ratio of 57.3 and P/S ratio of 0.9.
Northstar is entitled to receive annual incentive compensation payments from Illinois to the extent it is successful in increasing the lottery's net income above specified target levels, subject to a cap of 5% of the applicable year's net income. Northstar will be responsible for payments to Illinois to the extent such targets are not achieved, subject to a similar cap. The lottery net income levels set forth in Northstar's successful bid for the PMA were $851 million, $950 million, $980 million, $986 million and $1 billion for the five fiscal years ending June 30, 2012, 2013, 2014, 2015 and 2016, respectively, representing a compound annual growth rate in lottery net income of approximately 44%, including an approximate 27% increase in lottery net income in the first year. These net income target levels are subject to upward or downward adjustment under certain circumstances in accordance with the terms of the PMA. Northstar is entitled to be reimbursed on a monthly basis for most of its operating expenses under the PMA, although certain expenses of Northstar associated with managing the lottery are not reimbursable. Earnings and cash flows from our equity investment in Northstar may be impacted to the extent the lottery achieves, or fails to achieve, the applicable net income targets and will be impacted to the extent Northstar incurs non-reimbursable expenses. The impact of this equity method investment was not material to our earnings from our equity investments for the three and six months ended June 30, 2012. As of the date of this Quarterly Report on Form 10-Q, Northstar is unable to estimate, and therefore has not recorded, any amounts in respect of annual incentive compensation or net income shortfall payments for the three or six month ended June 30, 2012. We expect that Northstar will be able to estimate the impact of any incentive compensation or shortfall payment for the lottery's fiscal year ended June 30, 2012 in September or October 2012.
Based on third-party data, our Lottery Systems customers' total draw game retail sales in the U.S. increased 3.8% and 9.9% for the three and six months ended June 30, 2012, respectively, compared to the same periods in 2011. Reflecting this improvement in retail sales, our Lottery Systems service revenue in the U.S. increased 6.4% and 9.8% for the three and six months ended June 30, 2012, respectively, compared to the same periods in 2011. The level of jackpots of the Powerball® and Mega Millions® multi-state draw lottery games impact our service revenues. In 2011, U.S. lottery directors authorized certain changes to the Powerball game, including an increase in the ticket price to $2, which went into effect on January 15, 2012.
The increase in Gaming service revenue included $5.4 million from the acquisition of Barcrest. In addition, service revenue from our U.K. LBO and pub customers increased $3.0 million due to growth in our installed gaming terminal base and higher gross win per terminal per day, partially offset by the impact of the loss of the William Hill contract. Our service revenue from international customers increased $0.8 million. The increase in Gaming service revenue was partially offset by approximately $1.9 million of revenue that did not recur due to the closing of our Austrian over-the-counter business in 2011. The increase in sales revenue of $4.4 million reflected the acquisition of Barcrest. Revenue for the three months ended June 30, 2012 also reflected unfavorable foreign currency translation of approximately $0.9 million.
The increase in Gaming service revenue included $11.2 million from the acquisition of Barcrest. In addition, service revenue from our U.K. LBO and pub customers increased $12.2 million due to a higher installed gaming terminal base and higher gross win per terminal per day, partially offset by the loss of the William Hill contract. Our service revenue from international customers increased $1.6 million. The increase in Gaming service revenue was partially offset by approximately $4.1 million of revenue that did not recur due to the closing of the Austrian over-the-counter business in 2011. The increase in sales revenue of $11.7 million reflected the acquisition of Barcrest. Revenue for the six months ended June 30, 2012 also included unfavorable foreign currency translation of approximately $1.3 million.
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Scientific Games Corp has a market cap of $797 million; its shares were traded at around $6.92 with a P/E ratio of 57.3 and P/S ratio of 0.9.
Highlight of Business Operations:
We derive approximately 52% of our annual revenue from sales to customers outside of the U.S. and are affected by fluctuations in foreign currency exchange rates, particularly the British Pound Sterling and Euro. The British Pound Sterling and the Euro represented, respectively, approximately $123 million, or 26.5%, and $26 million, or 5.7%, of our consolidated revenue for the six months ended June 30, 2012. Historically, foreign currency fluctuations have impacted our revenue more than our expenses, as a significant portion of our raw materials, such as paper and ink, are contracted for in U.S. dollars. We also have foreign currency exposure related to our equity investments denominated in British Pounds Sterling and Euros. Our earnings from our Euro-denominated equity investment in Lotterie Nazionali S.r.l ("LNS") were $10.3 million for the six months ended June 30, 2012. When we refer to the impact of foreign currency exchange rate fluctuations, we are referring to the difference between the relevant period rates and the prior period rates applied to the relevant period activity.Northstar is entitled to receive annual incentive compensation payments from Illinois to the extent it is successful in increasing the lottery's net income above specified target levels, subject to a cap of 5% of the applicable year's net income. Northstar will be responsible for payments to Illinois to the extent such targets are not achieved, subject to a similar cap. The lottery net income levels set forth in Northstar's successful bid for the PMA were $851 million, $950 million, $980 million, $986 million and $1 billion for the five fiscal years ending June 30, 2012, 2013, 2014, 2015 and 2016, respectively, representing a compound annual growth rate in lottery net income of approximately 44%, including an approximate 27% increase in lottery net income in the first year. These net income target levels are subject to upward or downward adjustment under certain circumstances in accordance with the terms of the PMA. Northstar is entitled to be reimbursed on a monthly basis for most of its operating expenses under the PMA, although certain expenses of Northstar associated with managing the lottery are not reimbursable. Earnings and cash flows from our equity investment in Northstar may be impacted to the extent the lottery achieves, or fails to achieve, the applicable net income targets and will be impacted to the extent Northstar incurs non-reimbursable expenses. The impact of this equity method investment was not material to our earnings from our equity investments for the three and six months ended June 30, 2012. As of the date of this Quarterly Report on Form 10-Q, Northstar is unable to estimate, and therefore has not recorded, any amounts in respect of annual incentive compensation or net income shortfall payments for the three or six month ended June 30, 2012. We expect that Northstar will be able to estimate the impact of any incentive compensation or shortfall payment for the lottery's fiscal year ended June 30, 2012 in September or October 2012.
Based on third-party data, our Lottery Systems customers' total draw game retail sales in the U.S. increased 3.8% and 9.9% for the three and six months ended June 30, 2012, respectively, compared to the same periods in 2011. Reflecting this improvement in retail sales, our Lottery Systems service revenue in the U.S. increased 6.4% and 9.8% for the three and six months ended June 30, 2012, respectively, compared to the same periods in 2011. The level of jackpots of the Powerball® and Mega Millions® multi-state draw lottery games impact our service revenues. In 2011, U.S. lottery directors authorized certain changes to the Powerball game, including an increase in the ticket price to $2, which went into effect on January 15, 2012.
The increase in Gaming service revenue included $5.4 million from the acquisition of Barcrest. In addition, service revenue from our U.K. LBO and pub customers increased $3.0 million due to growth in our installed gaming terminal base and higher gross win per terminal per day, partially offset by the impact of the loss of the William Hill contract. Our service revenue from international customers increased $0.8 million. The increase in Gaming service revenue was partially offset by approximately $1.9 million of revenue that did not recur due to the closing of our Austrian over-the-counter business in 2011. The increase in sales revenue of $4.4 million reflected the acquisition of Barcrest. Revenue for the three months ended June 30, 2012 also reflected unfavorable foreign currency translation of approximately $0.9 million.
The increase in Gaming service revenue included $11.2 million from the acquisition of Barcrest. In addition, service revenue from our U.K. LBO and pub customers increased $12.2 million due to a higher installed gaming terminal base and higher gross win per terminal per day, partially offset by the loss of the William Hill contract. Our service revenue from international customers increased $1.6 million. The increase in Gaming service revenue was partially offset by approximately $4.1 million of revenue that did not recur due to the closing of the Austrian over-the-counter business in 2011. The increase in sales revenue of $11.7 million reflected the acquisition of Barcrest. Revenue for the six months ended June 30, 2012 also included unfavorable foreign currency translation of approximately $1.3 million.
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