Scientific Games reports Q4 results

2 Mar 2007

NEW YORK –- (PRESS RELEASE) -- Scientific Games CORPORATION (Nasdaq: SGMS) today reported fourth quarter 2006 revenues of $232.1 million, up 14 percent from $202.9 million in the fourth quarter of 2005. Net income was $7.9 million or $0.08 per diluted share, net of $13.5 million of employee termination costs and $3.9 million of stock compensation expenses, down from net income of $10.3 million or $0.11 per diluted share in the fourth quarter of 2005. Non-GAAP adjusted net income before employee termination and stock compensation expenses for the fourth quarter of 2006 was $24.0 million or $0.25 per non-GAAP diluted share, compared to non-GAAP adjusted net income of $25.1 million or $0.27 per non-GAAP diluted share in the fourth quarter of 2005.

EBITDA for the fourth quarter of 2006 was $48.3 million, up 24 percent from $38.9 million in the fourth quarter of 2005. Excluding employee termination and stock compensation expenses, adjusted EBITDA increased 13 percent to $65.7 million for the fourth quarter of 2006, compared to adjusted EBITDA of $58.3 million for the fourth quarter of 2005.

For 2006, revenues increased 15 percent to $897.2 million compared to $781.7 for 2005. Net income was $66.8 million or $0.70 per diluted share, net of $25.1 million of employee termination, asset impairment and other costs and $17.9 million of stock compensation expenses, compared to net income of $75.3 million or $0.81 per diluted share in 2005. Non-GAAP adjusted net income before employee termination costs, stock compensation expenses, asset impairment and other charges was $98.4 million or $1.05 per non-GAAP diluted share for 2006, compared to non-GAAP adjusted net income of $95.9 million or $1.04 per non-GAAP diluted share in 2005.

EBITDA increased 22 percent to $239.5 million for 2006, compared to $195.7 million in 2005. Excluding employee termination costs, stock compensation expenses, asset impairment and other charges, adjusted EBITDA increased 23 percent to $272.7 million for 2006, compared to adjusted EBITDA of $222.4 million in 2005.

"Printed Products service revenue grew an impressive 22 percent in the fourth quarter," said Lorne Weil, Chairman and CEO. "As expected, after the summer slow-down, 'same store' sales growth re-accelerated. Excluding new contract revenue of approximately $4.2 million, 'same store' sales growth was approximately 17 percent."

Mr. Weil continued, "Italy continues to exceed expectations, achieving record sales every month, making Italy the strongest instant ticket market in Europe just two and a half years after launch. One of our goals is to bring the type of success we have generated in Italy to other international jurisdictions. We remain optimistic about future instant ticket launches in Mexico and Germany. We continue to make significant progress in our instant ticket market development activities in China. We are in advanced negotiations with various China based partners and provinces which could lead to the sale and distribution of instant tickets in certain jurisdictions prior to the end of 2007. We remain excited about the long term opportunity in China and are optimistic about our ability to penetrate that market. And domestically, we look forward to spring training and the launch of approximately 15 Major League Baseball games during the first and second quarters of 2007."

Printed Products sales revenue in the fourth quarter was $14.2 million, a decrease of 24 percent from $18.7 million in the fourth quarter of 2005, but a 34 percent improvement versus the third quarter of 2006. The decline is primarily due to a decline in phone card sales reflecting a continuing market driven shift to lower priced products. Printed Products sales margins went from 30 percent in the fourth quarter of 2005 to 20 percent in the fourth quarter of 2006 due to pricing pressure and decreased economies of scale.

"Lottery Systems Group service revenue grew four percent during the fourth quarter," added Weil. "Excluding EssNet service revenue of approximately $4.9 million and the Montana contract which elapsed, 'same store sales' were down approximately 4 percent. However we expect this segment to improve in 2007 with the launch of our Mexican online lottery with Televisa, improved jackpot activity, and the benefit of cost saving initiatives."

Lottery Systems sales revenue was $8.0 million, a decrease of 40 percent from $13.3 million in the fourth quarter of 2005. This is primarily due to the absence of a one-time sale of Instant Ticket Vending Machines (ITVMs) to Pennsylvania that accounted for $8.3 million of revenue in the fourth quarter of 2005, and decreased levels of sales activity due to pending legislation in Germany.

"Diversified Gaming Group service revenue grew 70 percent, largely due to the addition of Global Draw. Excluding $19.7 million of Global Draw revenue, our pari-mutuel related businesses showed margin improvement despite a 4% decline in revenue because of cost reduction initiatives. We believe that we've given the racing industry a giant step into the future with the introduction of the Quantum System. Both East and West Coast facilities are now operational and we expect to eventually move all on-track and off-track betting through the Quantum Data Centers. This is the kind of advanced data processing the racing industry -- and its critics -- have been calling for and Scientific Games is pleased to have brought it to life."

Weil added, "Scientific Games underwent a company-wide restructuring and a reduction in force during the fourth quarter. We now believe the Company is better positioned to both service existing customers and generate new ones. In the fourth quarter of 2006 we recorded employee termination charges of approximately $13.5 million. However, we expect these charges to result in an annual cost savings in excess of $20 million going forward."

Fourth quarter business development included an extended contract making Global Draw the exclusive supplier of gaming machines to almost 1,500 Coral betting shops in the United Kingdom. Scientific Games also purchased Games Media Ltd., a U.K. based company developing, publishing and selling "Amusement With Prizes" (AWP) machines, "Skill With Prizes" (SWP) machines and related content for the U.K. public house market. The U.K. public house market comprises approximately 60,000 pubs which have an estimated total of 120,000 AWPs and 30,000 SWPs. It is anticipated that the industry will undergo a digital replacement cycle of the current analog machines starting in 2007.

Subsequent to the end of the quarter the Company signed a significant licensing deal with Hasbro, giving us global exclusive lottery rights to games like MONOPOLY(TM), BATTLESHIP(TM), CLUE(TM), YAHTZEE(TM), BOGGLE(TM), and THE GAME OF LIFE(TM). The global deal has the potential to bring 20 Hasbro brands to multiple lottery platforms such as instant and pull-tab tickets, on-line terminal generated games, mobile, Internet and interactive television. Previously the Company only had licensing rights for U.S. instant tickets, with a competitor having the rights to online, so the expanded relationship bears great potential. The Company was also awarded an 11 year racing contract with the Camarero Group of Puerto Rico, and an extension with one of our most important customers, the Connecticut Lottery, for a new lottery system to be launched in 2008.

Weil concluded, "We are very excited by our robust business development pipeline and satisfied with the restructuring changes we have made. We believe the combination should yield both revenue growth and margin improvement in the coming quarters."

Information about the use of non-GAAP financial information is provided under the section "Non-GAAP Disclosure" below. The non-GAAP measures (adjusted net income, diluted adjusted net income per share, EBITDA and adjusted EBITDA) are reconciled to the corresponding GAAP measures in the financial schedules accompanying this release.

Stock Repurchase Program

As previously reported, on November 2, 2006, the Company's Board of Directors approved a stock repurchase program under which the Company is authorized to repurchase, from time to time in the open market through December 31, 2007, shares of its outstanding common stock in an aggregate amount up to $200 million. During the fourth quarter, the Company repurchased 321,548 shares for a total cost of approximately $9.8 million. The timing and amount of purchases will be determined by the Company's management based on their evaluation of market conditions, share price and other factors. Purchases are expected to be funded by cash flows from operations, borrowings, or a combination thereof. The stock repurchase program may be discontinued at any time.

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	Scientific Games reports Q4 results 2 Mar 2007 NEW YORK –- (PRESS RELEASE) -- Scientific Games CORPORATION (Nasdaq: SGMS) today reported fourth quarter 2006 revenues of $232.1 million, up 14 percent from $202.9 million in the fourth quarter of 2005. Net income was $7.9 million or $0.08 per diluted share, net of $13.5 million of employee termination costs and $3.9 million of stock compensation expenses, down from net income of $10.3 million or $0.11 per diluted share in the fourth quarter of 2005. Non-GAAP adjusted net income before employee termination and stock compensation expenses for the fourth quarter of 2006 was $24.0 million or $0.25 per non-GAAP diluted share, compared to non-GAAP adjusted net income of $25.1 million or $0.27 per non-GAAP diluted share in the fourth quarter of 2005. EBITDA for the fourth quarter of 2006 was $48.3 million, up 24 percent from $38.9 million in the fourth quarter of 2005. Excluding employee termination and stock compensation expenses, adjusted EBITDA increased 13 percent to $65.7 million for the fourth quarter of 2006, compared to adjusted EBITDA of $58.3 million for the fourth quarter of 2005. For 2006, revenues increased 15 percent to $897.2 million compared to $781.7 for 2005. Net income was $66.8 million or $0.70 per diluted share, net of $25.1 million of employee termination, asset impairment and other costs and $17.9 million of stock compensation expenses, compared to net income of $75.3 million or $0.81 per diluted share in 2005. Non-GAAP adjusted net income before employee termination costs, stock compensation expenses, asset impairment and other charges was $98.4 million or $1.05 per non-GAAP diluted share for 2006, compared to non-GAAP adjusted net income of $95.9 million or $1.04 per non-GAAP diluted share in 2005. EBITDA increased 22 percent to $239.5 million for 2006, compared to $195.7 million in 2005. Excluding employee termination costs, stock compensation expenses, asset impairment and other charges, adjusted EBITDA increased 23 percent to $272.7 million for 2006, compared to adjusted EBITDA of $222.4 million in 2005. "Printed Products service revenue grew an impressive 22 percent in the fourth quarter," said Lorne Weil, Chairman and CEO. "As expected, after the summer slow-down, 'same store' sales growth re-accelerated. Excluding new contract revenue of approximately $4.2 million, 'same store' sales growth was approximately 17 percent." Mr. Weil continued, "Italy continues to exceed expectations, achieving record sales every month, making Italy the strongest instant ticket market in Europe just two and a half years after launch. One of our goals is to bring the type of success we have generated in Italy to other international jurisdictions. We remain optimistic about future instant ticket launches in Mexico and Germany. We continue to make significant progress in our instant ticket market development activities in China. We are in advanced negotiations with various China based partners and provinces which could lead to the sale and distribution of instant tickets in certain jurisdictions prior to the end of 2007. We remain excited about the long term opportunity in China and are optimistic about our ability to penetrate that market. And domestically, we look forward to spring training and the launch of approximately 15 Major League Baseball games during the first and second quarters of 2007." Printed Products sales revenue in the fourth quarter was $14.2 million, a decrease of 24 percent from $18.7 million in the fourth quarter of 2005, but a 34 percent improvement versus the third quarter of 2006. The decline is primarily due to a decline in phone card sales reflecting a continuing market driven shift to lower priced products. Printed Products sales margins went from 30 percent in the fourth quarter of 2005 to 20 percent in the fourth quarter of 2006 due to pricing pressure and decreased economies of scale. "Lottery Systems Group service revenue grew four percent during the fourth quarter," added Weil. "Excluding EssNet service revenue of approximately $4.9 million and the Montana contract which elapsed, 'same store sales' were down approximately 4 percent. However we expect this segment to improve in 2007 with the launch of our Mexican online lottery with Televisa, improved jackpot activity, and the benefit of cost saving initiatives." Lottery Systems sales revenue was $8.0 million, a decrease of 40 percent from $13.3 million in the fourth quarter of 2005. This is primarily due to the absence of a one-time sale of Instant Ticket Vending Machines (ITVMs) to Pennsylvania that accounted for $8.3 million of revenue in the fourth quarter of 2005, and decreased levels of sales activity due to pending legislation in Germany. "Diversified Gaming Group service revenue grew 70 percent, largely due to the addition of Global Draw. Excluding $19.7 million of Global Draw revenue, our pari-mutuel related businesses showed margin improvement despite a 4% decline in revenue because of cost reduction initiatives. We believe that we've given the racing industry a giant step into the future with the introduction of the Quantum System. Both East and West Coast facilities are now operational and we expect to eventually move all on-track and off-track betting through the Quantum Data Centers. This is the kind of advanced data processing the racing industry -- and its critics -- have been calling for and Scientific Games is pleased to have brought it to life." Weil added, "Scientific Games underwent a company-wide restructuring and a reduction in force during the fourth quarter. We now believe the Company is better positioned to both service existing customers and generate new ones. In the fourth quarter of 2006 we recorded employee termination charges of approximately $13.5 million. However, we expect these charges to result in an annual cost savings in excess of $20 million going forward." Fourth quarter business development included an extended contract making Global Draw the exclusive supplier of gaming machines to almost 1,500 Coral betting shops in the United Kingdom. Scientific Games also purchased Games Media Ltd., a U.K. based company developing, publishing and selling "Amusement With Prizes" (AWP) machines, "Skill With Prizes" (SWP) machines and related content for the U.K. public house market. The U.K. public house market comprises approximately 60,000 pubs which have an estimated total of 120,000 AWPs and 30,000 SWPs. It is anticipated that the industry will undergo a digital replacement cycle of the current analog machines starting in 2007. Subsequent to the end of the quarter the Company signed a significant licensing deal with Hasbro, giving us global exclusive lottery rights to games like MONOPOLY(TM), BATTLESHIP(TM), CLUE(TM), YAHTZEE(TM), BOGGLE(TM), and THE GAME OF LIFE(TM). The global deal has the potential to bring 20 Hasbro brands to multiple lottery platforms such as instant and pull-tab tickets, on-line terminal generated games, mobile, Internet and interactive television. Previously the Company only had licensing rights for U.S. instant tickets, with a competitor having the rights to online, so the expanded relationship bears great potential. The Company was also awarded an 11 year racing contract with the Camarero Group of Puerto Rico, and an extension with one of our most important customers, the Connecticut Lottery, for a new lottery system to be launched in 2008. Weil concluded, "We are very excited by our robust business development pipeline and satisfied with the restructuring changes we have made. We believe the combination should yield both revenue growth and margin improvement in the coming quarters." Information about the use of non-GAAP financial information is provided under the section "Non-GAAP Disclosure" below. The non-GAAP measures (adjusted net income, diluted adjusted net income per share, EBITDA and adjusted EBITDA) are reconciled to the corresponding GAAP measures in the financial schedules accompanying this release. Stock Repurchase Program As previously reported, on November 2, 2006, the Company's Board of Directors approved a stock repurchase program under which the Company is authorized to repurchase, from time to time in the open market through December 31, 2007, shares of its outstanding common stock in an aggregate amount up to $200 million. During the fourth quarter, the Company repurchased 321,548 shares for a total cost of approximately $9.8 million. The timing and amount of purchases will be determined by the Company's management based on their evaluation of market conditions, share price and other factors. Purchases are expected to be funded by cash flows from operations, borrowings, or a combination thereof. The stock repurchase program may be discontinued at any time.