Exhibit 99.3
UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENT DATA
OF SCIENTIFIC GAMES AND GLOBAL DRAW
(IN THOUSANDS)
The unaudited pro forma condensed combined financial statements have been derived by the application of pro forma adjustments to the combined historical consolidated financial statements of Scientific Games Corporation (Scientific Games), the historical consolidated financial statements of Neomi Associates Inc (Neomi), including its 100% owed subsidiary, The Global Draw Limited, and the historical financial statements of Research and Development GmbH (Research and Development, and together with Neomi and its consolidated subsidiaries, Global Draw). The unaudited pro forma condensed combined statement of operations data for the year ended December 31, 2005 gives effect to the following: (i) the consummation of the acquisition of Global Draw by Scientific Games (the Global Draw acquisition), (ii) proceeds from the issuance of a $100,000 Term C Loan due December 2009 which bears interest at LIBOR plus 1.25% and (iii) $81,060 of borrowings under our Revolving Credit Facility which bears interest at LIBOR plus 1.75% , as if each occurred at January 1, 2005. The unaudited pro forma condensed combined balance sheet as of December 31, 2005 gives effect to these transactions as if each had occurred on that date.
The unaudited pro forma condensed combined financial data does not purport to represent what our financial position and results of operations would have been if these transactions had actually occurred as of the dates indicated and are not intended to project our financial position or results of operations for any future period.
The unaudited pro forma adjustments related to the purchase price allocation and financing of the Global Draw acquisition are preliminary and are based on information obtained to date that is subject to revision as additional information becomes available. Any such revisions could have a significant impact on total assets, total liabilities and stockholders equity, depreciation and amortization, interest expense and income taxes.
The unaudited pro forma condensed combined financial data should be read in conjunction with our historical consolidated financial statements and the related notes and Managements Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2005, and Neomis and Research and Developments historical financial statements and the related notes contained therein, elsewhere in this document.
The Global Draw acquisition will be accounted for in accordance with Statement of Financial Accounting Standards, or SFAS, No. 141, Business Combinations, and accordingly, we will allocate the purchase price to the assets acquired and liabilities assumed based on their respective fair values as of the closing of the acquisition which will be determined based on valuations and other studies that are currently in process. A preliminary allocation of the purchase price has been made to major categories of assets and liabilities in the accompanying pro forma combined financial information based on estimates and preliminary results of valuations and studies performed to date. The actual allocation of the purchase price and the resulting effect on income from operations may differ materially from the pro forma amounts included herein. Except as explained in the notes to the Unaudited Pro Forma Combined Balance Sheet, we have assumed that the current recorded book value of Global Draws assets and liabilities approximate their fair value. When we can further analyze Global Draws detailed asset records, we will make an allocation of the purchase price to these assets based on detailed valuations, which may change the amounts of currently recorded book values of Global Draws assets and liabilities thereby changing the amount of goodwill reflected in the accompanying unaudited pro forma condensed combined financial data. In addition, we will review the estimated remaining lives of the assets, which may affect the resulting depreciation and amortization relating to these assets, and accordingly, may affect net income and the pro forma results of operations included herein.
1
UNAUDITED PRO FORMA
CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2005
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
|
Scientific |
|
Neomi |
|
Research |
|
Pro Forma |
|
Unaudited |
|
|
|
|
|
|
(1) |
|
(2) |
|
(3) |
|
(4) |
|
|
|
|
|
|
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
$ |
639,327 |
|
76,379 |
|
2,808 |
|
(2,808 |
)(e) |
715,706 |
|
|
|
Sales |
|
142,356 |
|
|
|
|
|
|
|
142,356 |
|
|
|
|
|
|
781,683 |
|
76,379 |
|
2,808 |
|
(2,808 |
) |
858,062 |
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services (exclusive of depreciation and amortization) |
|
351,430 |
|
28,785 |
|
1,720 |
|
(2,808 |
)(e) |
379,127 |
|
|
|
|
Cost of sales (exclusive of depreciation and amortization) |
|
100,621 |
|
|
|
|
|
|
|
100,621 |
|
|
|
|
Selling, general and administrative expenses |
|
131,844 |
|
14,472 |
|
567 |
|
(6,153 |
)(a) |
140,730 |
|
|
|
|
Depreciation and amortization |
|
66,794 |
|
18,902 |
|
255 |
|
(8,619 |
)(b)(c) |
77,332 |
|
|
|
|
Operating income |
|
130,994 |
|
14,220 |
|
266 |
|
14,772 |
|
160,252 |
|
|
|
|
Other deductions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
26,548 |
|
73 |
|
9 |
|
12,180 |
(d) |
38,810 |
|
|
|
|
Equity in loss in joint ventures |
|
2,064 |
|
|
|
|
|
|
|
2,064 |
|
|
|
|
Early extinguishment of debt |
|
478 |
|
|
|
|
|
|
|
478 |
|
|
|
|
Other (income) expense, net |
|
(1,700 |
) |
(298 |
) |
9 |
|
|
|
(1,989 |
) |
|
|
|
|
|
27,390 |
|
(225 |
) |
18 |
|
12,180 |
|
39,363 |
|
|
|
|
Income before income tax expense |
|
103,604 |
|
14,445 |
|
248 |
|
2,592 |
|
120,889 |
|
|
|
|
Income tax (benefit) expense |
|
28,285 |
|
(1,340 |
) |
62 |
|
6,616 |
(f) |
33,623 |
|
|
|
|
Net income |
|
$ |
75,319 |
|
15,785 |
|
186 |
|
(4,024 |
) |
87,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income available to common stockholders |
|
$ |
0.84 |
|
|
|
|
|
|
|
0.98 |
|
|
|
Diluted net income available to common stockholders |
|
$ |
0.81 |
|
|
|
|
|
|
|
0.94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares used in per share calculations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares |
|
89,327 |
|
|
|
|
|
|
|
89,327 |
|
|
|
|
Diluted shares |
|
92,484 |
|
|
|
|
|
|
|
92,484 |
|
|
|
The accompanying notes are an integral part of this unaudited pro forma condensed combined statement of operations.
2
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
1. The historical balances in this column represent the consolidated results of operations of Scientific Games for the twelve months ended December 31, 2005 as reported in the audited historical consolidated financial statements of Scientific Games.
2. The historical balances in this column represent the consolidated results of operations of Neomi for the twelve months ended March 31, 2006 as reported in the audited historical consolidated financial statements of Neomi.
3. The historical balances in this column represent the results of operations of Research and Development for the twelve months ended December 31, 2005 as reported in the audited historical consolidated financial statements of Research and Development.
4. The pro forma adjustments reflected in the unaudited pro forma condensed combined statements of operations give effect to the following:
(a) A decrease to selling, general and administrative expenses related to the following:
|
To eliminate transaction bonuses awarded to certain key employees |
|
$ |
3,664 |
|
|
To eliminate social tax charges resulting from the selling shareholders transfer of shares in Neomi to certain key employees |
|
2,489 |
|
|
|
|
|
$ |
6,153 |
|
(b) A decrease in depreciation expense relating to acquired property and equipment based on estimated useful lives (in years) and estimated fair market values. The following table indicates the components of the adjustments by asset class and the amount by which current estimates of average useful lives differ from the average remaining lives in the depreciation accounts of Global Draw:
3
DEPRECIATION EXPENSE
|
|
Preliminary |
|
Historic |
|
Approximate |
|
Year Ended |
|
|||
|
Terminals and computer equipment |
|
$ |
5,661 |
|
4 |
|
2 |
|
2,950 |
|
|
|
Transportation equipment |
|
1,068 |
|
4 |
|
3 |
|
365 |
|
||
|
|
|
$ |
6,729 |
|
|
|
|
|
3,315 |
|
|
|
Global Draw historical depreciation expense |
|
|
|
|
|
|
|
11,168 |
|
||
|
|
|
|
|
|
|
|
|
|
|
||
|
Decrease in depreciation expense |
|
|
|
|
|
|
|
$ |
7,853 |
|
|
The decrease in depreciation expense results from the estimated fair market value of the terminals and computer equipment being less than the net book value of such items.
(c) A decrease in amortization expense relating to acquired intangible assets and goodwill based on estimated lives as follows:
AMORTIZATION EXPENSE
|
|
Preliminary |
|
Average |
|
Year Ended |
|
||
|
Customer relationships |
|
$ 8,422 |
|
3 |
|
2,812 |
|
|
|
Game Technology |
|
16,602 |
|
4 |
|
4,156 |
|
|
|
Trade name |
|
4,915 |
|
N/A |
|
|
|
|
|
|
|
$ 29,939 |
|
|
|
6,968 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Draw historical intangible amortization expense |
|
|
|
|
|
7,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in amortization expense |
|
|
|
|
|
$ |
766 |
|
4
(d) A net increase in interest expense reflecting borrowings under the term loan, the revolving loan facility, and amortization of deferred financing costs, is calculated as follows:
INTEREST EXPENSE
|
|
Amount |
|
Interest |
|
Year Ended |
|
|||
|
New senior credit facilities: |
|
|
|
|
|
|
|
||
|
Term C Loan |
|
$ |
100,000 |
|
6.47 |
% |
6,470 |
|
|
|
Revolving credit facility |
|
81,060 |
|
6.97 |
% |
5,650 |
|
||
|
Amortization of deferred financing costs |
|
|
|
|
|
142 |
|
||
|
|
|
$ |
181,060 |
|
|
|
12,262 |
|
|
|
Existing interest expense on debt being repaid |
|
|
|
|
|
82 |
|
||
|
Increase in interest expense |
|
|
|
|
|
$ |
12,180 |
|
|
The effect of a 0.125% change in the assumed interest rate on borrowings under our new senior credit facilities would result in a $226 change in the pro forma interest expense on an annual basis.
(e) The elimination of intercompany revenue and costs related to services provided by Research and Development to The Global Draw Limited.
(f) A net increase in income tax expense resulting from the following:
|
The elimination of the corporate tax deduction taken in connection with the payment of social tax charges resulting from the sole selling shareholders transfer of shares in Neomi to certain key employees |
|
$ |
5,838 |
|
|
Income tax expense resulting from the pro forma decrease in taxable income |
|
778 |
|
|
|
|
|
$ |
6,616 |
|
5
UNAUDITED PRO FORMA
CONDENSED COMBINED BALANCE SHEET
YEAR ENDED DECEMBER 31, 2005
(IN THOUSANDS)
|
|
|
Scientific Games |
|
Neomi |
|
Research and |
|
Pro Forma |
|
Unaudited |
|
|
|
|
(1) |
|
(2) |
|
(3) |
|
(4) |
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
38,942 |
|
5,797 |
|
|
|
(569 |
)(d) |
44,170 |
|
|
Accounts receivable |
|
129,250 |
|
3,409 |
|
693 |
|
|
|
133,352 |
|
|
Inventories |
|
40,148 |
|
1,228 |
|
|
|
|
|
41,376 |
|
|
Deferred income taxes |
|
14,242 |
|
2,285 |
|
|
|
|
|
16,527 |
|
|
Prepaid expenses, deposits and other current assets |
|
31,971 |
|
15,016 |
|
6 |
|
|
|
46,993 |
|
|
Total current assets |
|
254,553 |
|
27,735 |
|
699 |
|
(569 |
) |
282,418 |
|
|
Property and equipment, at cost |
|
666,469 |
|
48,884 |
|
674 |
|
(42,829 |
) |
673,198 |
|
|
Less accumulated depreciation |
|
300,250 |
|
34,235 |
|
174 |
|
(34,409 |
) |
300,250 |
|
|
Net property and equipment |
|
366,219 |
|
14,649 |
|
500 |
|
(8,420 |
)(a) |
372,948 |
|
|
Goodwill |
|
339,169 |
|
|
|
|
|
132,516 |
(b) |
471,685 |
|
|
Operating right, net |
|
14,020 |
|
|
|
|
|
|
|
14,020 |
|
|
Other intangible assets, net |
|
73,269 |
|
17,474 |
|
71 |
|
12,394 |
(c) |
103,208 |
|
|
Other assets and investments |
|
125,283 |
|
|
|
|
|
569 |
(d) |
125,852 |
|
|
Total assets |
|
1,172,513 |
|
59,858 |
|
1,270 |
|
136,490 |
|
1,370,131 |
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Current installments of long-term debt |
|
6,055 |
|
|
|
43 |
|
1,000 |
(f) |
7,098 |
|
|
Accounts payable |
|
54,223 |
|
2,235 |
|
32 |
|
|
|
56,490 |
|
|
Accrued liabilities |
|
80,305 |
|
12,142 |
|
914 |
|
|
|
93,361 |
|
|
Interest payable |
|
779 |
|
|
|
|
|
|
|
779 |
|
|
Total current liabilities |
|
141,362 |
|
14,377 |
|
989 |
|
1,000 |
|
157,728 |
|
|
Deferred income taxes |
|
9,759 |
|
|
|
|
|
1,192 |
(g) |
10,951 |
|
|
Other long-term liabilities |
|
59,879 |
|
|
|
|
|
|
|
59,879 |
|
|
Long-term debt, excluding current installments |
|
574,680 |
|
38,832 |
|
|
|
141,228 |
(e)(f) |
754,740 |
|
|
Total liabilities |
|
785,680 |
|
53,209 |
|
989 |
|
143,420 |
|
983,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock, par value $0.01 per share, 199,300 shares authorized, 88,414 and 89,869 shares outstanding at December 31, 2004 and 2005, respectively |
|
899 |
|
|
|
21 |
|
(21 |
)(h) |
899 |
|
|
Additional paid-in capital |
|
425,750 |
|
|
|
|
|
|
|
425,750 |
|
|
Accumulated profits (losses) |
|
(33,309 |
) |
6,649 |
|
260 |
|
(6,909 |
)(h) |
(33,309 |
) |
|
Treasury stock, at cost |
|
(9,556 |
) |
|
|
|
|
|
|
(9,556 |
) |
|
Accumulated other comprehensive income |
|
3,049 |
|
|
|
|
|
|
|
3,049 |
|
|
Total stockholders equity |
|
386,833 |
|
6,649 |
|
281 |
|
(6,930 |
) |
386,833 |
|
|
Total liabilities and stockholders equity |
|
1,172,513 |
|
59,858 |
|
1,270 |
|
136,490 |
|
1,370,131 |
|
6
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(IN THOUSANDS)
1. The historical balances in this column represent the consolidated balance sheet of Scientific Games as of December 31, 2005 as reported in the audited historical consolidated financial statements of Scientific Games.
2. The historical balances in this column represent the consolidated balance sheet of Neomi as of March 31, 2006 as reported in the audited historical consolidated financial statements of Neomi.
3. The historical balances in this column represent the balance sheet of Research and Development as of December 31, 2005 as reported in the audited historical financial statements of Research and Development.
4. The pro forma adjustments reflected in the unaudited pro forma condensed combined balance sheet give effect to the following:
a. Based on preliminary information, the fair market values of the acquired property and equipment is below the historical net book values of these assets by $8,420. As a result, this amount has been reflected as a decrease to property and equipment.
b. The increase in goodwill results from the Global Draw acquisition.
c. Based on preliminary information, the fair market value of acquired intangible assets is above the historical book value of these assets by $12,394. As a result, this amount has been reflected as an increase to intangible assets.
d. The increase in other assets results from the capitalization of deferred financing fees.
e. Proceeds from the new Term C Loan and borrowings under the Revolving Credit Facility less repayment of existing debt of Neomi and existing debt of Scientific Games calculated as follows:
|
Proceeds from Term C Loan |
|
$100,000 |
|
|
Proceeds from borrowings under the Revolving |
|
|
|
|
Credit Facility |
|
81,060 |
|
|
Repayment of existing debt of Neomi |
|
(38,832 |
) |
|
|
|
$142,228 |
|
f. The net increase in long-term debt of $142,228 has been classified as follows:
|
Current installments of long-term debt |
|
$ |
1,000 |
|
|
Long-term debt, excluding current installments |
|
141,228 |
|
|
|
|
|
$ |
142,228 |
|
g. The increase in current deferred tax liabilities of $1,192 is the result of the increase in the fair value of identifiable intangible assets acquired, partially offset by the decrease in property plant and equipment, in connection with the acquisition of Global Draw.
h. Reflects adjustments to historical stockholders equity.
7