Scientific Games reports results

1 Aug 2008

NEW YORK –- (PRESS RELEASE) -- Scientific Games Corporation (Nasdaq: SGMS) today reported second quarter 2008 revenues of $306.0 million, up 14% from $269.6 million in the second quarter of 2007. Net income was $29.0 million or $0.31 per diluted share, up from net income of $27.1 million or $0.28 per diluted share in the second quarter of 2007. Non-GAAP adjusted net income, excluding the Global Draw earn-out accrual, the early extinguishment of debt charge, expenses associated with the retirement of a division President and settlement with the California Horse Racing Board, was $33.4 million or $0.35 per diluted non-GAAP share. Excluding stock compensation expense, earnings were $38.8 million or $0.41 per non-GAAP diluted share, compared to non-GAAP adjusted net income of $30.7 million or $0.32 per non-GAAP diluted share in the second quarter of 2007.

EBITDA for the second quarter of 2008 was $93.1 million, up from $84.3 million in the second quarter of 2007. Adjusted EBITDA increased 16% to $104.0 million for the second quarter of 2008, compared to adjusted EBITDA of $89.3 million for the second quarter of 2007.

For the six months ended June 30, 2008, revenues were $563.0 million, compared to $511.8 million for the six months ended June 30, 2007, an increase of 10%. Net income was $48.9 million or $0.52 per diluted share, compared to $51.9 million or $0.54 per diluted share in 2007. EBITDA increased to $169.9 million from $160.1 million in 2007. Adjusted EBITDA increased 13% to $193.9 million.

During the quarter the Company completed a refinancing which included a $250 million senior secured revolving credit facility, a $550 million senior secured term loan credit facility, and $200 million of senior subordinated notes. Proceeds of this refinancing were used to repay all amounts outstanding under the Company's prior credit agreement. The refinancing extended the average maturity of the Company's debt, created additional borrowing capacity and loosened certain financial covenants. Lorne Weil, Chairman and CEO of Scientific Games commented, "We were pleased to complete $1 billion of financing on favorable terms in an otherwise difficult credit market. The undrawn revolver positions us for the growth we expect in coming years."

Printed Products Group

Printed Products Group service revenue increased by 16% to $146.8 million in the second quarter. Excluding revenues from Oberthur Gaming Technologies (OGT), the Pennsylvania cooperative service contract re-pricing, and instant tickets shipped to China, "same store" sales growth in the quarter was approximately 6%. The China Sports Lottery continues to perform exceedingly well, with weekly retail sales having recently exceeded $60 million, or more than $3 billion on an annualized basis. We remain very excited about this unique opportunity and have targeted the end of the year to begin producing instant tickets in our plant in Beijing. In the meantime we will continue to absorb the negative impact of air freight and duty, which accounted for more than $3 million of incremental cost in the second quarter. As a consequence overall Printed Product Group gross margins declined from 42% in the second quarter of 2007 to 40% this year; however, excluding the impact of the foregoing, margins were essentially flat year-over-year.

Lottery Systems Group

Lottery Systems Group service revenues grew by 16% in the quarter to $61.3 million from $52.8 million last year, while service gross margins increased from 47% to 49%. "Same store" service revenue growth was about 7.5% overall, largely due to international growth, domestic jackpot activity and strong associated instant tickets validation revenues. Much of the overall increase in revenue and margin was attributable to the new contract for instant ticket activation, validation and tracking services for the China Sports Lottery, whose distribution network has reached 50,000 retailers on file.

Lottery Systems Group sales revenues increased to $24.5 million from $10.5 million in the second quarter of 2007. Most of the revenue increase was driven by the shipment of the first 3,000 Leonardo/Wave(TM) terminals to Sisal but, because of a range of start-up expenses associated with the contract, there was very little margin earned on these shipments in the second quarter. As we progress through the full 25,000 unit contract, we anticipate that margins will improve significantly.

The Televisa Mexican lottery contract negatively impacted earnings by $3.7 million or nearly $0.03 per share in the second quarter of 2008. During the second quarter, Televisa began to develop plans to re-launch the Multijuegos online lottery with an improved offering of games, payouts and price points, while we continue to await the launch of instant tickets, which we see as key to the success of the overall project.

Diversified Gaming Group

Diversified Gaming Group service revenues increased by 3% overall in the second quarter, with a 29% increase in Global Draw revenues offset by a modest decline in racing-related revenues and a sharp decline in Games Media revenue. As explained previously, Games Media is in the deliberate process of transitioning from a one-time product sale business model to one driven by participation-based recurring revenues and, while we are tracking well according to plan, we expect that it will take a few more quarters for revenue to return to previous levels. Gross margins in the Diversified Gaming Group were ahead of both the first quarter of this year and the second quarter of last year despite absorbing the cost of the Global Draw earn-out and the settlement of the California Horse Racing Board matter.

New Contract Activity

During the quarter we were awarded new cooperative service contracts by the Florida Lottery and the Sachsen-Anhalt Lottery in Germany, a new online contract by the Pennsylvania Lottery, and a race book contract by the Tunica Biloxi tribal casino in Louisiana.

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.

Convertible Debentures

A market price event did not occur for the quarter ended June 30, 2008 and, accordingly, the Convertible Debentures are not convertible during the current quarter ending September 30, 2008. During the second quarter of 2008, the average price of the Company's common stock exceeded the specified conversion price of $29.10 of the Convertible Debentures. Because of this, approximately 19,000 and 10,000 shares of common stock underlying the Convertible Debentures have been included in the weighted average number of diluted shares for the second quarter of 2008 and first half of 2008, respectively. Although the Company purchased a hedge in December 2004 to mitigate the potential dilution from the conversion of the Convertible Debenture, the Company is precluded from reflecting this hedge in the GAAP weighted average number of diluted shares because the effect would be anti- dilutive. However, to the extent the Convertible Debentures are converted during the term of the hedge, the diluted share amount will decrease because the hedge will offset the dilution from conversion of the Convertible Debentures.

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	Scientific Games reports results 1 Aug 2008 <a href='https://ad.casinocity.com/adclick.php?n=a21efcd1'><img src='https://ad.casinocity.com/adview.php?what=-site:vendors/width:250/RON&n=a21efcd1' border='0' alt='' /></a> NEW YORK –- (PRESS RELEASE) -- Scientific Games Corporation (Nasdaq: SGMS) today reported second quarter 2008 revenues of $306.0 million, up 14% from $269.6 million in the second quarter of 2007. Net income was $29.0 million or $0.31 per diluted share, up from net income of $27.1 million or $0.28 per diluted share in the second quarter of 2007. Non-GAAP adjusted net income, excluding the Global Draw earn-out accrual, the early extinguishment of debt charge, expenses associated with the retirement of a division President and settlement with the California Horse Racing Board, was $33.4 million or $0.35 per diluted non-GAAP share. Excluding stock compensation expense, earnings were $38.8 million or $0.41 per non-GAAP diluted share, compared to non-GAAP adjusted net income of $30.7 million or $0.32 per non-GAAP diluted share in the second quarter of 2007. EBITDA for the second quarter of 2008 was $93.1 million, up from $84.3 million in the second quarter of 2007. Adjusted EBITDA increased 16% to $104.0 million for the second quarter of 2008, compared to adjusted EBITDA of $89.3 million for the second quarter of 2007. For the six months ended June 30, 2008, revenues were $563.0 million, compared to $511.8 million for the six months ended June 30, 2007, an increase of 10%. Net income was $48.9 million or $0.52 per diluted share, compared to $51.9 million or $0.54 per diluted share in 2007. EBITDA increased to $169.9 million from $160.1 million in 2007. Adjusted EBITDA increased 13% to $193.9 million. During the quarter the Company completed a refinancing which included a $250 million senior secured revolving credit facility, a $550 million senior secured term loan credit facility, and $200 million of senior subordinated notes. Proceeds of this refinancing were used to repay all amounts outstanding under the Company's prior credit agreement. The refinancing extended the average maturity of the Company's debt, created additional borrowing capacity and loosened certain financial covenants. Lorne Weil, Chairman and CEO of Scientific Games commented, "We were pleased to complete $1 billion of financing on favorable terms in an otherwise difficult credit market. The undrawn revolver positions us for the growth we expect in coming years." Printed Products Group Printed Products Group service revenue increased by 16% to $146.8 million in the second quarter. Excluding revenues from Oberthur Gaming Technologies (OGT), the Pennsylvania cooperative service contract re-pricing, and instant tickets shipped to China, "same store" sales growth in the quarter was approximately 6%. The China Sports Lottery continues to perform exceedingly well, with weekly retail sales having recently exceeded $60 million, or more than $3 billion on an annualized basis. We remain very excited about this unique opportunity and have targeted the end of the year to begin producing instant tickets in our plant in Beijing. In the meantime we will continue to absorb the negative impact of air freight and duty, which accounted for more than $3 million of incremental cost in the second quarter. As a consequence overall Printed Product Group gross margins declined from 42% in the second quarter of 2007 to 40% this year; however, excluding the impact of the foregoing, margins were essentially flat year-over-year. Lottery Systems Group Lottery Systems Group service revenues grew by 16% in the quarter to $61.3 million from $52.8 million last year, while service gross margins increased from 47% to 49%. "Same store" service revenue growth was about 7.5% overall, largely due to international growth, domestic jackpot activity and strong associated instant tickets validation revenues. Much of the overall increase in revenue and margin was attributable to the new contract for instant ticket activation, validation and tracking services for the China Sports Lottery, whose distribution network has reached 50,000 retailers on file. Lottery Systems Group sales revenues increased to $24.5 million from $10.5 million in the second quarter of 2007. Most of the revenue increase was driven by the shipment of the first 3,000 Leonardo/Wave(TM) terminals to Sisal but, because of a range of start-up expenses associated with the contract, there was very little margin earned on these shipments in the second quarter. As we progress through the full 25,000 unit contract, we anticipate that margins will improve significantly. The Televisa Mexican lottery contract negatively impacted earnings by $3.7 million or nearly $0.03 per share in the second quarter of 2008. During the second quarter, Televisa began to develop plans to re-launch the Multijuegos online lottery with an improved offering of games, payouts and price points, while we continue to await the launch of instant tickets, which we see as key to the success of the overall project. Diversified Gaming Group Diversified Gaming Group service revenues increased by 3% overall in the second quarter, with a 29% increase in Global Draw revenues offset by a modest decline in racing-related revenues and a sharp decline in Games Media revenue. As explained previously, Games Media is in the deliberate process of transitioning from a one-time product sale business model to one driven by participation-based recurring revenues and, while we are tracking well according to plan, we expect that it will take a few more quarters for revenue to return to previous levels. Gross margins in the Diversified Gaming Group were ahead of both the first quarter of this year and the second quarter of last year despite absorbing the cost of the Global Draw earn-out and the settlement of the California Horse Racing Board matter. New Contract Activity During the quarter we were awarded new cooperative service contracts by the Florida Lottery and the Sachsen-Anhalt Lottery in Germany, a new online contract by the Pennsylvania Lottery, and a race book contract by the Tunica Biloxi tribal casino in Louisiana. 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. Convertible Debentures A market price event did not occur for the quarter ended June 30, 2008 and, accordingly, the Convertible Debentures are not convertible during the current quarter ending September 30, 2008. During the second quarter of 2008, the average price of the Company's common stock exceeded the specified conversion price of $29.10 of the Convertible Debentures. Because of this, approximately 19,000 and 10,000 shares of common stock underlying the Convertible Debentures have been included in the weighted average number of diluted shares for the second quarter of 2008 and first half of 2008, respectively. Although the Company purchased a hedge in December 2004 to mitigate the potential dilution from the conversion of the Convertible Debenture, the Company is precluded from reflecting this hedge in the GAAP weighted average number of diluted shares because the effect would be anti- dilutive. However, to the extent the Convertible Debentures are converted during the term of the hedge, the diluted share amount will decrease because the hedge will offset the dilution from conversion of the Convertible Debentures.