Scientific Games Results Up

24 Feb 2005

NEW YORK – (PRESS RELEASE) -- SCIENTIFIC GAMES CORPORATION (Nasdaq: SGMS) announced financial results for the fourth quarter and year ended December 31, 2004. Revenues in the fourth quarter of 2004 were $182.6 million compared to $176.8 million in the fourth quarter of 2003. Net income was $4.4 million or $0.05 per diluted share in the fourth quarter of 2004 compared to net income before non-cash preferred stock dividend of $15.0 million or $0.17 per diluted share in the fourth quarter of 2003. In the fourth quarter of 2003, the non-cash preferred stock dividend was $2.0 million.

EBITDA (earnings before interest, taxes, depreciation and amortization - please see reconciliation below) for the fourth quarter of 2004 was $51.2 million compared to $47.2 million in the comparable period of 2003.

During 2004, revenues increased to $725.5 million from $560.9 million in 2003, an increase of 29%. Net income before preferred stock dividend was $65.7 million in 2004 or $0.72 per diluted share compared to net income before non-cash preferred stock dividend of $52.1 million or $0.59 per diluted share in 2003. The preferred stock dividend was $7.7 million in 2003 and $4.7 million for 2004. The preferred stock dividend was eliminated when the holders converted the preferred stock into common stock in August 2004.

EBITDA was $209.0 million in 2004, an increase of 33% from $157.0 million in 2003.

The Company benefited from strong instant lottery ticket sales, the acquisition of IGT OnLine Entertainment (OES) and the launching of the new online lottery in North Dakota and the new instant ticket lottery in Tennessee throughout 2004 as well the fourth quarter of 2004. These results were partially offset by a $16.9 million charge in connection with its December 2004 debt refinancing and the repayment of most of its previously outstanding subordinated debt; a $6.1 million charge for its share of startup costs for the Italian joint venture that began selling instant tickets in June 2004; and approximately $3.1 million of non-recurring charges in the pari-mutuel segment largely as a result of adjustments identified during completion of its Sarbanes-Oxley review. Net income for the fourth quarter of 2004 before these unusual items would have been $22.5 million for the fourth quarter of 2004 or $0.25 per diluted share, and $83.8 million or $0.92 per diluted share for the year.

Lorne Weil, Chairman and CEO, commented, "In many respects, the fourth quarter was a very exciting one for our company. We concluded a debt refinancing that enabled us to virtually eliminate our 12-1/2% senior subordinated notes; converted most of our floating rate debt into fixed rate instruments; and increased our credit facilities by $300 million. The result of this balance sheet restructuring is approximately $10 million less in interest expense for 2005 and the addition of substantial resources to grow the company far into the future."

"Instant ticket revenues continued to be extraordinarily strong in the quarter, especially among our cooperative services customers," Mr. Weil continued. "We won a new instant lottery contract for the Louisiana Lottery, the extension of our Iowa online lottery contract, as well as a new video lottery monitoring and control agreement for Maine -- together representing at least $22.3 million in revenues over the next few years."

"In fact, the whole of 2004 was a very successful year for us as we won the $67 million Loteria Electronica online lottery award in Puerto Rico; extended all five of the US online lottery contracts that were eligible for extension; added three new instant lottery ticket customers, bringing us to 26 US customers for whom we are the primary supplier; extended our cooperative services contract with the Pennsylvania Lottery; and won the two new video lottery monitoring contracts in New Mexico and Maine. In Germany we closed on the acquisition of the instant ticket provider, Printpool Honsel, launched our third Internet-based wagering game, and just signed an agreement to provide Oddset wagering services for Sports Toto in Korea."

"Although pari-mutuel and venue management revenues have declined from last year, management is in the process of improving the operations of those divisions by negotiating new agreements and pursuing new venues. During 2004, we added four new tote services customers for total of $3.8 million in revenues over the terms of their respective contracts. Scientific Games Racing also won several contract extensions securing over $9 million in revenues over the extension periods. Our simulcasting division has signed six new customers and extended several contracts, representing $8.5 million in revenues. New management at Autotote Enterprises has signed two new racebook agreements, one with Isle of Capri for its Our Lucaya casino in the Bahamas and the other with TRAXCO, Inc. for the racetrack and off-track betting locations on St. Croix. In addition, to attract more account wagering in Connecticut, our cable television horseracing show is currently broadcast into a total of 700,000 cable subscribers' homes."

Outlook

"In 2005 all indications are that instant lottery ticket sales will continue to be robust both at home and abroad," Mr. Weil continued. "Higher price point games, licensed brand tickets and new instant ticket play styles all drive sales and we believe these products will continue to be popular. Our new, networked vending solutions are also encouraging customers to expand their distribution of lottery products."

"Our focus on expanding our international presence has yielded tangible results. In Italy instant ticket sales have already reached the $1.4 billion annualized retail sales level. The acquisition of Printpool Honsel, completed in December, should enable us to help German lotteries realize substantial increases in their sales over the next few years. We also just launched our third Internet-based gaming system in Germany bringing to eight the number of Germany lotteries for which we provide maintenance and support. These gaming systems offer lottery games, sports wagering and instant games through the Internet."

"In recent years, online lottery sales growth has been tied to the large jackpots typical of the multi-state games like Powerball(R) and MegaMillions(R). In 2004 Scientific Games introduced a new online game in Pennsylvania called Match 6(TM) which was extremely successful. Now Delaware is about to launch its own version. Match 6(TM) is the first in a full line of new online lottery games the company plans to roll out over the next several years."

Mr. Weil said, "As many of you know, we announced an important strategic alliance with International Game Technology (IGT) in mid-January. As we submit bids to provide our AEGIS(R)-Video central monitoring and control systems for government-sponsored gaming networks, we will now be including features offered by IGT's Advantage(R) System such as loyalty management programs, accounting and E-Z Pay systems. We believe this will be a unique and successful combination of features."

Sarbanes-Oxley

In connection with the preparation of the Company's consolidated financial statements for the year ended December 31, 2004, the Company determined that it had an internal control deficiency that constitutes a "material weakness" as defined by the Public Company Accounting Oversight Board's Accounting Standard No. 2. The Company has concluded that it had insufficient personnel resources and technical accounting expertise within the accounting function to resolve non-routine or complex accounting matters.

As a result, management will be unable to conclude that the Company's internal controls over financial reporting are effective as of December 31, 2004. Therefore Deloitte & Touche LLP will issue an adverse opinion with respect to the Company's internal controls over financial reporting. The Company is in the process of remediating this material weakness.

Over the past year, Scientific Games has devoted significant resources to assess and strengthen its internal controls in the context of the Sarbanes-Oxley Section 404 review. The indicated weakness concerns unusual accounting transactions and does not affect the Company's financial strength or business prospects.

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	Scientific Games Results Up 24 Feb 2005 NEW YORK – (PRESS RELEASE) -- SCIENTIFIC GAMES CORPORATION (Nasdaq: SGMS) announced financial results for the fourth quarter and year ended December 31, 2004. Revenues in the fourth quarter of 2004 were $182.6 million compared to $176.8 million in the fourth quarter of 2003. Net income was $4.4 million or $0.05 per diluted share in the fourth quarter of 2004 compared to net income before non-cash preferred stock dividend of $15.0 million or $0.17 per diluted share in the fourth quarter of 2003. In the fourth quarter of 2003, the non-cash preferred stock dividend was $2.0 million. EBITDA (earnings before interest, taxes, depreciation and amortization - please see reconciliation below) for the fourth quarter of 2004 was $51.2 million compared to $47.2 million in the comparable period of 2003. During 2004, revenues increased to $725.5 million from $560.9 million in 2003, an increase of 29%. Net income before preferred stock dividend was $65.7 million in 2004 or $0.72 per diluted share compared to net income before non-cash preferred stock dividend of $52.1 million or $0.59 per diluted share in 2003. The preferred stock dividend was $7.7 million in 2003 and $4.7 million for 2004. The preferred stock dividend was eliminated when the holders converted the preferred stock into common stock in August 2004. EBITDA was $209.0 million in 2004, an increase of 33% from $157.0 million in 2003. The Company benefited from strong instant lottery ticket sales, the acquisition of IGT OnLine Entertainment (OES) and the launching of the new online lottery in North Dakota and the new instant ticket lottery in Tennessee throughout 2004 as well the fourth quarter of 2004. These results were partially offset by a $16.9 million charge in connection with its December 2004 debt refinancing and the repayment of most of its previously outstanding subordinated debt; a $6.1 million charge for its share of startup costs for the Italian joint venture that began selling instant tickets in June 2004; and approximately $3.1 million of non-recurring charges in the pari-mutuel segment largely as a result of adjustments identified during completion of its Sarbanes-Oxley review. Net income for the fourth quarter of 2004 before these unusual items would have been $22.5 million for the fourth quarter of 2004 or $0.25 per diluted share, and $83.8 million or $0.92 per diluted share for the year. Lorne Weil, Chairman and CEO, commented, "In many respects, the fourth quarter was a very exciting one for our company. We concluded a debt refinancing that enabled us to virtually eliminate our 12-1/2% senior subordinated notes; converted most of our floating rate debt into fixed rate instruments; and increased our credit facilities by $300 million. The result of this balance sheet restructuring is approximately $10 million less in interest expense for 2005 and the addition of substantial resources to grow the company far into the future." "Instant ticket revenues continued to be extraordinarily strong in the quarter, especially among our cooperative services customers," Mr. Weil continued. "We won a new instant lottery contract for the Louisiana Lottery, the extension of our Iowa online lottery contract, as well as a new video lottery monitoring and control agreement for Maine -- together representing at least $22.3 million in revenues over the next few years." "In fact, the whole of 2004 was a very successful year for us as we won the $67 million Loteria Electronica online lottery award in Puerto Rico; extended all five of the US online lottery contracts that were eligible for extension; added three new instant lottery ticket customers, bringing us to 26 US customers for whom we are the primary supplier; extended our cooperative services contract with the Pennsylvania Lottery; and won the two new video lottery monitoring contracts in New Mexico and Maine. In Germany we closed on the acquisition of the instant ticket provider, Printpool Honsel, launched our third Internet-based wagering game, and just signed an agreement to provide Oddset wagering services for Sports Toto in Korea." "Although pari-mutuel and venue management revenues have declined from last year, management is in the process of improving the operations of those divisions by negotiating new agreements and pursuing new venues. During 2004, we added four new tote services customers for total of $3.8 million in revenues over the terms of their respective contracts. Scientific Games Racing also won several contract extensions securing over $9 million in revenues over the extension periods. Our simulcasting division has signed six new customers and extended several contracts, representing $8.5 million in revenues. New management at Autotote Enterprises has signed two new racebook agreements, one with Isle of Capri for its Our Lucaya casino in the Bahamas and the other with TRAXCO, Inc. for the racetrack and off-track betting locations on St. Croix. In addition, to attract more account wagering in Connecticut, our cable television horseracing show is currently broadcast into a total of 700,000 cable subscribers' homes." Outlook "In 2005 all indications are that instant lottery ticket sales will continue to be robust both at home and abroad," Mr. Weil continued. "Higher price point games, licensed brand tickets and new instant ticket play styles all drive sales and we believe these products will continue to be popular. Our new, networked vending solutions are also encouraging customers to expand their distribution of lottery products." "Our focus on expanding our international presence has yielded tangible results. In Italy instant ticket sales have already reached the $1.4 billion annualized retail sales level. The acquisition of Printpool Honsel, completed in December, should enable us to help German lotteries realize substantial increases in their sales over the next few years. We also just launched our third Internet-based gaming system in Germany bringing to eight the number of Germany lotteries for which we provide maintenance and support. These gaming systems offer lottery games, sports wagering and instant games through the Internet." "In recent years, online lottery sales growth has been tied to the large jackpots typical of the multi-state games like Powerball(R) and MegaMillions(R). In 2004 Scientific Games introduced a new online game in Pennsylvania called Match 6(TM) which was extremely successful. Now Delaware is about to launch its own version. Match 6(TM) is the first in a full line of new online lottery games the company plans to roll out over the next several years." Mr. Weil said, "As many of you know, we announced an important strategic alliance with International Game Technology (IGT) in mid-January. As we submit bids to provide our AEGIS(R)-Video central monitoring and control systems for government-sponsored gaming networks, we will now be including features offered by IGT's Advantage(R) System such as loyalty management programs, accounting and E-Z Pay systems. We believe this will be a unique and successful combination of features." Sarbanes-Oxley In connection with the preparation of the Company's consolidated financial statements for the year ended December 31, 2004, the Company determined that it had an internal control deficiency that constitutes a "material weakness" as defined by the Public Company Accounting Oversight Board's Accounting Standard No. 2. The Company has concluded that it had insufficient personnel resources and technical accounting expertise within the accounting function to resolve non-routine or complex accounting matters. As a result, management will be unable to conclude that the Company's internal controls over financial reporting are effective as of December 31, 2004. Therefore Deloitte & Touche LLP will issue an adverse opinion with respect to the Company's internal controls over financial reporting. The Company is in the process of remediating this material weakness. Over the past year, Scientific Games has devoted significant resources to assess and strengthen its internal controls in the context of the Sarbanes-Oxley Section 404 review. The indicated weakness concerns unusual accounting transactions and does not affect the Company's financial strength or business prospects.