[ISN] Hacker costs CryptoLogic US$1.3M charge

From: InfoSec News (isnat_private)
Date: Wed Feb 06 2002 - 23:02:16 PST

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    [This has to be one of the first times I have seen a corporation
    listing a hacker attack as a loss on their financial statement. 
    $1.3 million is no chump change today, all the managers on this list
    looking for additional $$$ in their infosec budget should be pointing
    this article out when the powers that be think that something like
    this will never happen to their company, and that the V.P's really
    should have new Herman Miller chairs instead.  - WK]
    Paul Vieira  
    National Post 
    Tuesday, February 05, 2002
    CryptoLogic Inc., a gambling software maker, saw its fourth-quarter
    profit drop 10%, largely because it took a charge related to a hacker
    attack last August that saw 140 online gamblers pocket winnings of
    about US$1.9-million.
    The company, in a conference call with analysts yesterday, said it
    hopes to recover a good chunk of the illicit gains through an
    insurance claim. Nevertheless, it is taking a US$1.3-million charge.  
    "A prudent approach was necessary," said Jean Nolting, CryptoLogic's
    chief executive.
    In the span of a couple of hours, a computer hacker broke into
    CryptoLogic's Web servers and reprogrammed slot machines and a craps
    table at two Web-based casinos that use the company's software.
    Slot machine and craps players at the casinos won each time they
    The charge pulled down profit for the three-month period ended Dec. 31
    to US$3.7-million, or US28 a share, from US$4.1-million (US29).  
    Meanwhile, revenue for the quarter increased 15%, to US$11.2-million
    from $9.7-million.
    Despite the fourth-quarter charge, the company posted higher profit in
    2001. For the full fiscal year, CryptoLogic earned US$18.1-million
    (US$1.33) on revenue of US$43.5-million, compared with $15.5-million
    (US$1.18) on sales of US$34.4-million.
    Excluding the writeoff, profit would have been US$4.2-million for the
    fourth quarter and US$18.6-million for the year, the company said.
    Also, the Toronto firm said it posted profit margin of 45% and has
    US$60-million in cash as of the end of 2001.
    During its call with analysts, Mr. Nolting said 2002 had the makings
    of a "profitable year, with solidly upside potential," especially in
    the second half.
    For this fiscal year, the company forecasts revenue of US$45-million
    to US$50-million and profit between US$17-million and US$20-million.
    It expects to hit the "bottom" of the growth curve in the first
    However, CryptoLogic said U.S. banks' refusal to accept credit card
    charges from online gambling sites could hinder growth prospects in
    North America. Credit card rejections in the United States jumped 25%
    in December as anti-terrorism efforts and the uncertain legality of
    online gambling in North America cast a chill over U.S. banks.
    Therefore, the company said, it will be examining offshore markets.  
    "Europe and Asia -- those will be our key areas," Mr. Nolting said.
    By the end of the year, it wants half of its revenue to come from
    Europe and Asia, the rest from North America. About 65% of its sales
    now come from North America.
    A key part of its foreign focus will be an online casino to be
    operated by Littlewoods, a British-based gambling operator. However,
    the launch of Littlewoods.com has been delayed as regulators in the
    Isle of Man, where the online casino will be incorporated, want more
    information about the software.
    But Mr. Nolting said he expected Littlewoods to be in operation by the
    end of the first quarter, and to generate up to 10% of total revenue.
    Growth in 2002 will also be aided by the release of online versions of
    bingo and poker that the company has been developing.
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