CryptoLogic to Take Special Charge In Q2, Revises Outlook For 2002; Return to Growth Expected in Second Half of Year.Business Editors TORONTO--(BUSINESS WIRE)--June 19, 2002 CryptoLogic Inc CryptoLogic Inc. is a Toronto-based online gambling software supplier, one of the four largest in the industry along with Microgaming, Playtech, and Real Time Gaming. CryptoLogic was founded by brothers Andrew and Mark Rivkin in 1995 from the basement of their parent's house. . (Nasdaq:CRYP CRYP Cheyenne River Youth Project (Eagle Butte, SD) ) (TSX TSX Toronto Stock Exchange (TSE before April, 2002) TSX Transfer from Stack Pointer to Index TSX True Space Extension :CRY): ALL DOLLAR AMOUNTS IN US$ CryptoLogic Inc. (Nasdaq:CRYP) (TSX:CRY), a leading supplier of software to the Internet gaming and e-commerce industries, today announced that it will take a charge totaling $9.5 million in the current quarter. In response to changing market conditions, the Company has also updated financial guidance for the second quarter and fiscal year. CryptoLogic cryp·tol·o·gy n. The study of cryptanalysis or cryptography. cryp  to·log now expects a return to sequential earnings growth in
the third quarter and year-over-year growth in the fourth quarter of
2002.This charge includes a 100% write down of the company's investment in Sports.com, past portfolio investments that have been deemed to be permanently impaired and restructuring expenses incurred. Of the $9.5 million, approximately $8.0 million is of a non-cash nature. The charge primarily relates to a $6.6 million investment in SCG SCG Serbia and Montenegro SCG Srbija I Crna Gora (Servian: Serbia and Montenegro) SCG Sydney Cricket Ground SCG Service Canadien des Glaces (Canadian Ice Service) SCG superior cervical ganglion Enterprises (SCG), a wholly-owned subsidiary of U.K.-based sports portal Sports.com Limited and the holder of Sports.com's online gaming See gaming. businesses. WagerLogic Limited, CryptoLogic's licensing subsidiary, made the investment to secure a long-term casino licensing agreement at a higher revenue share and an option to acquire SCG in the future. The write down is due to Sports.com being placed into Administration in late May, thereby significantly impairing the marketing ability of SCG. Following discussions with the Administrator, management has conservatively decided to write down the full value of the investment. The Company is taking legal advice with regard to the financial situation of Sports.com. "The rapid deterioration of the financial position of Sports.com, particularly in advance of the World Cup is markedly different from representations made to us and we will pursue all legal options open to us," said Jean Noelting, President & CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. of CryptoLogic. The balance of the write-down relates to past portfolio investments, which were made by the Company in prior years, and restructuring expenses associated with the consolidation in the U.K. of the Players' Support operation, and various other initiatives undertaken in the second quarter. "Despite the write-down, CryptoLogic's balance sheet remains sound, and the Company's strategy of expansion outside of North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. is unchanged," said Jean Noelting, President and CEO. "The overall trend in the Internet gaming market remains solidly upward, and we expect a return to revenue and earnings growth in the second half as new internationally focused licensee sites ramp up Ramp Up To increase a company's operations in anticipation of increased demand. Notes: A company might 'ramp up' operations if they just signed a contract creating substantially more demand for their product. See also: Demand, Economies of Scale and localized products gain traction." CryptoLogic's strategy for 2002 is to focus on rapidly growing international markets, principally in Europe, and the Company is pleased with progress made to date. The recent launch of Dukesgaming.com by licensee Dukes Entertainment N.V., the release of localized software for the German, Spanish and Japanese markets, and the pending launches of two brand-name properties in the U.K., are expected to increase international revenue in the second half of the year. The Company's expectation remains that 50% of revenues will be generated by licensees' end-users in non-US markets by the end of 2002. In the second quarter, revenue will be lower than expected due to continued pressure from U.S. financial institutions on Internet gaming in that country. In late 2001, certain U.S.-based banks began self-regulating the use of their credit cards for Internet gaming transactions. By the end of the first quarter of 2002, CryptoLogic had recovered approximately half of the revenue lost as a result of this decision, through the implementation of third-party payment options and increased marketing of other non-credit card-based forms of payment. During the second quarter, however, several additional US banks opted to self-regulate, resulting in increased rejections for U.S.-based players. To mitigate this impact, CryptoLogic is implementing a restructuring plan to reduce costs in line with revenue, and the associated costs of the restructuring plan have been included in the charge. As a result, the Company has updated its financial expectations for 2002, excluding the impact of the second quarter charge, as follows:
(US$ millions, except per share amounts)
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Q2 Q3
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Previous Updated Previous Updated
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Revenue 9.5-10.5 8.8-9.0 N/A 9.5-10
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Net Income 2.5-3.0 2.0-2.2 N/A 2.5-3.0
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Diluted
EPS 0.19-0.22 0.15-0.17 N/A 0.19-0.23
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(US$ millions, except per share amounts)
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Q4 FY 2002
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Previous Updated Previous Updated
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Revenue N/A 11.0-12.0 44.0-46.0 38.0-39.7
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Net Income N/A 3.5-4.0 13.5-15.0 10.2-11.4
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Diluted
EPS N/A 0.27-0.31 1.01-1.12 0.77-0.86
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The special charge will decrease diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of for the second quarter and fiscal year by $0.67. About CryptoLogic CryptoLogic Inc. is the leading software development company serving the Internet gaming market. The company's proprietary technologies enable secure, high-speed financial transactions over the Internet. CryptoLogic, ranked #1 in the Profit 100, continues to innovate and develop state-of-the-art Internet software applications for both the electronic commerce and Internet gaming industries. WagerLogic, a wholly-owned subsidiary of CryptoLogic, is responsible for the licensing of its gaming software and services to customers around the world. CryptoLogic's common shares trade on the Toronto Stock Exchange Toronto Stock Exchange (TSE) Canada's largest stock exchange, trading approximately 1,200 company stocks and 33 options. under the symbol CRY and on the Nasdaq National Market under the symbol CRYP. There are currently 12.1 million common shares outstanding (14.5 million shares fully diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. ). CRYPTOLOGIC FORWARD LOOKING STATEMENT DISCLAIMER: Statements in this press release which are not historical are forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. made pursuant to the safe harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. provisions of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. Investors are cautioned that all forward-looking statements involve risks and uncertainties including, without limitation, risks associated with the Company's financial condition and prospects, legal risks associated with Internet gaming and risks of governmental legislation and regulation, risks associated with market acceptance and technological changes, risks associated with dependence on licensees and key licensees, risks relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc international operations Internal Operations (I.O., IO or I/O) is a fictional American Intelligence Agency in Wildstorm comics. It was originally called International Operations. I.O. first appeared in WildC.A.T.S. volume 1 #1 (August, 1992) and was created by Brandon Choi and Jim Lee. , risks associated with competition and other risks detailed in the Company's filings with securities regulatory authorities Noun 1. regulatory authority - a governmental agency that regulates businesses in the public interest regulatory agency administrative body, administrative unit - a unit with administrative responsibilities . These risks may cause results to differ materially from those projected in the forward-looking statements. |
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