Scientific Games Announces Third Quarter 2012 Results

            Scientific Games Announces Third Quarter 2012 Results

PR Newswire

NEW YORK, Nov. 6, 2012

NEW YORK, Nov. 6, 2012 /PRNewswire/ --Scientific Games Corporation (Nasdaq:
SGMS) today announced results for the third quarter ended September 30, 2012.

Summary Financial Results
($ in millions, except per share amounts)
                            Three Months Ended  Nine Months Ended

                            September 30,       September 30,
                            2012       2011     2012      2011
Revenue                     $227.5     $222.7   $691.4    $639.6
Operating income            13.2       21.4     44.5      64.6
Attributable EBITDA         82.5       81.7     252.7     247.2
Net loss                    (27.1)     (4.1)    (37.9)    (4.0)
Net loss per share          ($0.30)    ($0.04)  ($0.41)   ($0.04)
Total capital expenditures  $29.7      $24.2    $80.0     $68.4
Free cash flow              ($5.1)     $30.8    $27.9     $84.3

Attributable EBITDA and free cash flow as used herein are non-GAAP financial
measures defined below under "Non-GAAP Financial Measures" and reconciled to
GAAP financial measures in the accompanying tables. 

Recent Business Highlights

  oScientific Games' U.S. instant ticket and lottery systems customers'
    retail sales increased 8.9% and 8.5%, respectively, in the third quarter
    of 2012 compared to the prior-year period, based on third-party data
  oGlobal Draw's U.K. total gross win and gross win per terminal per day
    increased 8.1% and 6.5%, respectively, in the third quarter of 2012 versus
    the prior-year period, excluding William Hill's gross win in the
    prior-year period
  oExecuted the following agreements:

       oContract with The Gala Coral Group ("Coral") for Global Draw to
         continue to be the exclusive provider of server-based gaming
         terminals for Coral's estate through 2017
       oContract for Properties Plus^® internet-based player loyalty rewards
         program for the Kentucky Lottery
       oSeven-year contract with the Atlantic Lottery to remain the exclusive
         instant ticket supplier through July 2019
       oThree-year contract with the Massachusetts Lottery to supply instant
         tickets through September 2015
       oSix-year contract with the Texas Lottery to supply instant tickets
         through August 2018
       oFive-year contract with the Connecticut Lottery to supply instant
         tickets through August 2017
       oTwo-year contract with the New Zealand Lottery to supply instant
         tickets through July 2014

  oCompleted $300 million offering of 6.250% senior subordinated notes due
    2020 ("2020 Notes"); redeemed 7.875% senior subordinated notes due 2016
    ("2016 Notes")
  oCompany repurchased 6,196,606 of its common shares at an aggregate cost of
    $45.5 million during the third quarter; through the settlement date of
    November 2, 2012, Company repurchased 8,092,198 shares for approximately
    $60.7 million during 2012

"We were very pleased with the continued strong retail sales in the U.S. and
U.K., which helped to offset weakness in our Italy and China businesses and
the unfavorable impact of foreign currency fluctuations on our results,"
Chairman and Chief Executive Officer A. Lorne Weil commented. "We are
encouraged by signs of stabilization in Italy, based on a number of recent
weeks of improved performance.While our China business remains soft as we
move into the fourth quarter, we are taking a series of actions designed to
revitalize our business there."

Mr. Weil continued, "We remain focused on our longer term pipeline of growth
opportunities. Our plans are ambitious for the U.S., where we believe the
lottery industry is at the beginning of a new phase of growth with the ability
to offer games to players via the internet. As the leader in internet-based
player loyalty programs for U.S. lotteries, we believe we are uniquely
positioned to help lotteries transition to offering pay-for-play products to
their customers. We also see additional opportunities both in the U.S. and
internationally to implement our industry-leading instant game management and
optimization programs as well as our integrated lottery solutions that have
proven successful in maximizing lottery performance in many jurisdictions
globally."

Jeffrey S. Lipkin, Senior Vice President and Chief Financial Officer, added,
"We've taken further steps this quarter to strengthen our balance sheet. The
favorable credit market environment provided an opportunity to refinance our
debt at very attractive rates and extend our weighted average maturities to
over five years, positioning us well to pursue our growth initiatives.
Furthermore, we believe that the recent activity under our share repurchase
program demonstrates our Board of Directors' and management's continued
support of and confidence in our strategic plan and long-term growth
prospects."

Business Update

Our third quarter results reflected varying levels of strength across our
diverse global businesses. U.S. retail sales continued on a positive trend.
Our customers' retail sales of instant tickets rose 8.9% in the quarter and
their sales of draw games grew 8.5%. Instant ticket sales continue to be
propelled by strong performance in larger states, and draw sales have
benefited from higher average jackpots. We are also pleased that we secured a
number of our instant ticket contracts during the quarter.

We have seen sustained success with our services provided to the Illinois
Lottery through Northstar, where revenue grew approximately 17% in the third
quarter, driven by a nearly 20% increase in instant ticket retail sales and a
12% increase in draw sales. We think the results in Illinois are a good
indicator of how we can help lotteries maximize their performance through our
industry-leading instant game and facilities management programs, as we have
done in other states such as Florida, Pennsylvania and Georgia, which also
reported strong instant ticket sales increases this quarter. We believe these
value-added programs, including game design, telemarketing, predictive
ordering, warehousing and distribution and retail execution, are a key factor
behind the instant ticket sales growth that U.S. lotteries have been realizing
for some period of time.

During the third quarter, we began selling our new ULTRA^TM multi-game video
gaming terminal. While the ULTRA has been in the field for just a short time,
we are very excited about the prospects for this new, innovative product that
builds on years of experience developed in our lottery and Global Draw
businesses. This new product provides us with access to the North American
machine business to complement our successful central monitoring and control
systems business.

As importantly, video gaming was launched in Illinois in early October, with
statewide monitoring and control provided by our central system.

Our Gaming business performed well again this quarter. Revenue grew 14% driven
by the acquisition of Barcrest and an increase in Global Draw's U.K. total
gross win and gross win per terminal per day. Based on the latest quarterly
results reported by Ladbrokes and William Hill, Ladbrokes' gross win per
terminal per week is approximately £50 higher than William Hill's, a
significant improvement compared to the period before Scientific Games was the
exclusive provider to Ladbrokes, when Ladbrokes' gross win per terminal per
week was approximately £120 lower than William Hill's. Additionally, the
Gaming business has already realized some benefits from the recent acquisition
of ADS and its leading field-based service team, which has expanded the range
of products and services offered to betting shop customers. The extension of
the exclusive Coral contract secures this significant customer through 2017
and Coral will be the first customer to introduce Global Draw's new state-of
the-art Infinity2 terminal that features an innovative new design and expanded
functionality to enhance the player's experience.

In Italy, retail sales of instant tickets declined by approximately 6.3% in
the third quarter, which we believe continued to be due to a decrease in
consumer spending related to difficult economic conditions and tax increases.
We are encouraged by some recent evidence of stabilization in the instant
ticket business in Italy, based on a number of weeks of improved performance
in both September and October. While it is too early to determine if this is a
turnaround, it is encouraging.

Instant ticket retail sales in China remained weak in the third quarter, with
sales softening further in the fourth quarter. However, retail sales of the
entire lottery segment in China grew by 20% year-to-date through September 30,
2012, indicating sustained consumer demand for lottery products. Instant
ticket sales have been impacted by a number of factors, including competition
from other lottery games. With our lottery partners, we have developed a
series of remedial actions that we believe will slow down and ultimately
reverse the recent trends; however, we expect it will take some time for these
actions to take effect so that we may better capitalize on the long-term
opportunity in China.

Looking ahead, other growth initiatives include additional roll-outs of our
Properties Plus player rewards programs. During the quarter, the Kentucky
Lottery became our seventh Properties Plus customer and we continue to realize
increased revenue from this business. We see additional opportunities in the
pipeline and believe the Properties Plus program will help lead the way for
states to begin providing internet-based offerings. We expect that our long
track record as an internet-based services vendor will provide a competitive
advantage.

Other developments during the quarter include the execution of a new license
agreement with Zynga, which provides us the ability to feature many of Zynga's
key brands on lottery instant tickets and virtual games. Consistent with the
increasing interest in driving players online, lotteries will now have access
to Zynga-branded 2^nd Chance interactive games and 2^nd Chance virtual prizes
that players can redeem in conjunction with their favorite Zynga social games.
The "$1 Million Las Vegas Game Show Experience," our 2012 multi-state game,
which launched in the second quarter, has shown promising initial results,
with 11 states signed up for the game.

The recent acquisitions of Provoloto and Parspro have also created new
opportunities for Scientific Games. We are working to build on Provoloto's
position as a leading provider of instant ticket services in Mexico with our
content, licensing and marketing capabilities, in order to strengthen our
presence there and create a platform for further expansion in Latin America.

In Delaware, where we are the only vendor supplying a sports betting platform
for a lottery in the U.S., betting through our system during the current NFL
season has increased by 37% through late October 2012 compared to the
prior-year period, reinforcing the enthusiasm for this business that we have
had for some time. Indeed, with our many years of gaming expertise, combined
with our recent acquisition of Parspro and its state-of-the art sports betting
solutions, we see the potential for this area to be one of the next waves of
lottery development.

Third Quarter 2012 Financial Results

Revenue

  oRevenue increase of 2.1% reflects growth in Gaming and Lottery Systems
    segments, partially offset by a decline in Printed Products and an
    unfavorable foreign exchange impact of $5.0 million

Operating Income

  oDecrease in operating income primarily reflects:

       o$11.2 million increase in depreciation and amortization
       o$0.8 million increase in employee termination and restructuring
       oIncreases partially offset by $3.3 million decrease in selling,
         general and administrative

  oIncrease in depreciation and amortization principally reflects:

       oAccelerated depreciation of $8.6 million related to a write-down of
         gaming terminals and previously announced closing of Australia
         printing facility
       o$1.6 million of additional depreciation from acquisition of Barcrest

  oReduction in selling, general and administrative primarily due to:

       o$4.5 million decrease in accrual related to the Asia-Pacific business
         incentive compensation plan
       o$1.1 million decrease in acquisition and advisory fees
       o$1.0 million reduction in contractual marketing commitments
       oDecreases partially offset by $2.4 million increase in accounts
         receivable reserves and $1.5 million of incremental overhead from
         acquisition of Barcrest 

  oIncrease in employee termination and restructuring in the Printed Products
    and Gaming groups of $0.3 million and $0.5 million, respectively

Net Income 

  oIn addition to the impact of the items mentioned above, the decline in net
    income reflected:

       o$11.3 million increase in loss on early extinguishment of debt
         related to the redemption of the 2016 Notes and the write-off of
         previously deferred financing costs
       o$3.2 million of lower earnings from equity investments, primarily
         reflecting a decline in instant ticket retail sales in Italy
       o$2.9 million increase in income tax expense
       oDecline partially offset by $2.2 million decrease in other expense
         principally due to a decline in foreign exchange transaction expense

EBITDA from Equity Investments

  oEBITDA from equity investments decreased by $3.5 million, principally due
    to lower results from Italy and China of $3.6 million and $0.9 million,
    respectively

Attributable EBITDA

  oAttributable EBITDA increased by $0.8 million, despite a reduction in
    EBITDA of approximately $6.4 million from Italy and China businesses
    including unfavorable currency fluctuations

Third Quarter 2012 Operating Results by Segment
($ in millions)
                  Revenue             Operating Income
                  Three Months Ended  Three Months Ended

                  September 30,       September 30,
                  2012       2011     2012        2011
Printed Products  $127.4     $129.6   $30.3       $34.7
Lottery Systems   61.9       59.6     8.9         7.3
Gaming            38.3       33.5     (7.7)       3.2

Printed Products

Revenue

  oRevenue decrease of 1.8% resulted primarily from decline in licensed
    properties business of $6.2 million, largely due to challenging
    year-over-year comparisons resulting from timing of launch of the Wheel of
    Fortune^® multi-state game in 2011 compared to the timing of the Las Vegas
    Game Show multi-state game in 2012, which launched later during the year
  o$3.2 million decline in international revenue from customers that purchase
    tickets on a price per thousand unit basis, including lower sales to Italy
  o$1.4 million unfavorable foreign exchange impact
  oRevenue decreases partially offset by:

       o$5.2 million increase in revenue from U.S. and international
         customers that compensate us based on a percentage of retail sales,
         including cooperative services customers
       o$3.4 million increase in revenue from U.S. customers that purchase
         tickets on a price per thousand unit basis

Operating Income

  oOperating income decrease reflected:

       o$3.5 million impact from lower revenue and less profitable mix of
         revenue
       o$2.2 million increase in depreciation and amortization
       o$0.3 million of employee termination and restructuring related to
         closing of Australia printing facility

  oIncrease in depreciation and amortization principally reflected:

       o$1.9 million of accelerated depreciation related to closing Australia
         printing facility

  oDecrease in operating income partially offset by $1.6 million decrease in
    selling, general and administrative principally due to a reduction in
    contractual marketing commitments and incentive compensation expense in
    current-year period

Lottery Systems

Revenue

  oRevenue increase of 3.8% primarily reflected higher sales revenue from
    increased demand for equipment and systems from both U.S. and
    international customers
  oService revenue was essentially flat compared to the prior-year period as
    strength in current-year period in U.S. business resulted in $2.7 million
    revenue increase, driven by a large Powerball^® jackpot and higher instant
    ticket validation revenue, which was in large part offset by $1.9 million
    of lower revenue in China
  o$2.1 million unfavorable foreign exchange impact

Operating Income

  oIncrease in operating income primarily reflects higher revenue from system
    sales

Gaming

Revenue

  oRevenue increase of 14.2% principally driven by acquisition of Barcrest,
    which contributed $3.7 million and $3.0 million of service revenue and
    sales revenue, respectively
  oResults also benefitted from $1.7 million increase in service revenue from
    licensed betting office customers in the U.K. due in part to higher gross
    win per terminal per day, partially offset by impact of loss of William
    Hill contract
  oRevenue growth was partially offset by:

       o$1.7 million negative impact from exiting Austrian over-the-counter
         business
       o$1.5 million unfavorable foreign exchange impact

Operating Income

  oDecrease in operating income primarily due to:

       o$9.0 million increase in depreciation and amortization 
       o$4.4 million increase in selling, general and administrative
       o$0.5 million increase in employee termination and restructuring;
         current-period amount relates to previously announced reorganization
         of Gaming business

  oIncrease in depreciation and amortization principally reflects:

       o$6.7 million of accelerated depreciation related to a write-down of
         gaming terminals
       o$1.6 million of additional depreciation from acquisition of Barcrest

  oIncrease in selling, general and administrative primarily due to:

       o$2.4 million increase in accounts receivable reserves
       o$1.5 million of incremental overhead from acquisition of Barcrest

  oDecrease in operating income partially offset by $3.0 million impact from
    higher and more profitable mix of revenue 

Liquidity and Capital Resources

  oAt September 30, 2012, cash and cash equivalents of $136.0 million and
    availability under revolving credit facility of $210.3 million
  oTotal debt of $1,469.1 million as of September 30, 2012 increased from
    $1,390.7 million at December 31, 2011, primarily reflecting the issuance
    of $300 million in 2020 Notes and the redemption of $200 million in 2016
    Notes during the third quarter, and the reduction of our China loans by
    approximately $16.3 million in the nine months ended September 30, 2012
  oFree cash flow for third quarter was $(5.1) million, compared to $30.8
    million in prior-year quarter, primarily due to increased capital
    expenditures of $5.5 million and increased working capital usage
  oReceived $0.6 million in cash dividends from equity investment in RCN
    during third quarter
  oCompany repurchased 6,196,606 of its common shares at an aggregate cost of
    $45.5 million during the third quarter. Through the settlement date of
    November 2, 2012, Company repurchased 8,092,198 shares for approximately
    $60.7 million during 2012.

Conference Call Details
Scientific Games will host a conference call today at 5:00 pm Eastern Standard
Time to review these results and discuss other topics. To access the call
live via a listen-only webcast, please visit www.scientificgames.com and click
on the webcast link under the Investor Information section. To access the
call by telephone, please dial (866) 713-8566 (U.S. and Canada) or (617)
597-5325 (international) 15 minutes prior to the start of the call. The
conference ID is 73844124.

A presentation summarizing the results will also be provided in the Investor
Information section on our website prior to the conference call. A replay of
the webcast and accompanying presentation will be archived in the Investor
Information section on our website. 

About Scientific Games
Scientific Games Corporation is a global leader in providing customized,
end-to-end gaming solutions to lottery and gaming organizations worldwide.
Scientific Games' integrated array of products and services includes instant
lottery games, lottery gaming systems, terminals and services, and internet
applications, as well as server-based interactive gaming terminals and
associated gaming control systems. For more information, please visit our
website at www.scientificgames.com.

Company Contact:
Cindi Buckwalter, Investor Relations
(212) 754-2233

Forward-Looking Statements
In this press release the Company makes "forward-looking statements" within
the meaning of the U.S. Private Securities Litigation Reform Act of 1995.
Forward-looking statements describe future expectations, plans, results or
strategies and can often be identified by the use of terminology such as
"may," "will," "estimate," "intend," "continue," "believe," "expect,"
"anticipate," "could," "potential," "opportunity," or similar terminology.
These statements are based upon management's current expectations, assumptions
and estimates and are not guarantees of future results or performance. Actual
results may differ materially from those contemplated in these statements due
to a variety of risks and uncertainties and other factors, including, among
other things: competition; material adverse changes in economic and industry
conditions; technological change; retention and renewal of existing contracts
and entry into new or revised contracts; availability and adequacy of cash
flows to satisfy obligations and indebtedness or future needs; protection of
intellectual property; security and integrity of software and systems; laws
and government regulation, including those relating to gaming licenses,
permits and operations; inability to identify, complete and integrate future
acquisitions; inability to benefit from, and risks associated with, strategic
equity investments and relationships; failure of Northstar to meet the net
income targets or otherwise realize the anticipated benefits under its private
management agreement with the Illinois Lottery; seasonality; inability to
identify and capitalize on trends and changes in the lottery and gaming
industries, including the potential expansion of regulated gaming via the
internet; inability to enhance and develop successful gaming concepts;
dependence on suppliers and manufacturers; liability for product defects;
fluctuations in foreign currency exchange rates and other factors associated
with international operations; influence of certain stockholders; dependence
on key personnel; failure to perform on contracts; resolution of pending or
future litigation; labor matters; and stock price volatility. Additional
information regarding risks and uncertainties and other factors that could
cause actual results to differ materially from those contemplated in
forward-looking statements is included from time to time in the Company's
filings with the Securities and Exchange Commission, including under the
heading "Risk Factors" in our periodic reports. Forward-looking statements
speak only as of the date they are made and, except for the Company's ongoing
obligations under the U.S. federal securities laws, the Company undertakes no
obligation to publicly update any forward-looking statements whether as a
result of new information, future events or otherwise.

Non-GAAP Financial Measures
Attributable EBITDA, as used herein, is based on the definition of
"consolidated EBITDA" in our credit agreement (summarized below), except that
attributable EBITDA as used herein includes our share of the EBITDA of all of
our equity investments (whereas "consolidated EBITDA" for purposes of the
credit agreement generally includes our share of the EBITDA of our Italian
joint venture but only the income of our other equity investments to the
extent it has been distributed to us). Attributable EBITDA is a non-GAAP
financial measure that is presented herein as a supplemental disclosure and is
reconciled to net income (loss) in a schedule below.

Attributable EBITDA includes adjustments only to the extent contemplated by
the definition of "consolidated EBITDA" in our credit agreement (which
adjustments are summarized in the paragraph below). Note that the adjustment
referred to in clause (9) in the paragraph below was added to the definition
of "consolidated EBITDA" as part of the March 11, 2011 amendment to our credit
agreement and revised as part of the August 25, 2011 amendment to our credit
agreement.

"Consolidated EBITDA" means, for any period, "consolidated net income" as
defined in the credit agreement (i.e., generally our consolidated net income
(or loss) excluding the income (or deficit) of our equity investments (other
than our Italian joint venture) except to the extent that such income has been
distributed to us) for such period plus, to the extent deducted in calculating
such consolidated net income for such period, the sum of (1) income tax
expense, (2) depreciation and amortization expense, (3) interest expense
(other than any interest expense of our Italian joint venture in respect of
debt for borrowed money of such joint venture if such debt exceeds $25,000,000
in the aggregate), (4) amortization or write-off of debt discount and debt
issuance costs and commissions, discounts and other fees and charges
associated with debt (see line item captioned "Debt-Related Fees and Charges"
in the schedules below), (5) amortization of intangibles (including goodwill)
and organization costs (see line item captioned "Amortization of Intangibles"
in the schedules below), (6) earn-out payments with respect to certain
acquisitions that we have made, such as our acquisition of Global Draw, or any
other "permitted acquisitions" (generally, acquisitions of companies that are
primarily engaged in the same or related line of business and that become
subsidiaries of ours, or acquisitions of all or substantially all of the
assets of another company or division or business unit of another company),
including any loss or expense with respect to such earn-out payments (see line
item captioned "Earn-Outs for Permitted Acquisitions" in the schedules below),
(7) extraordinary charges or losses determined in accordance with GAAP, (8)
non-cash stock-based compensation expenses, (9) any cash compensation expense
incurred but not paid in such period so long as no cash payment in respect
thereof is made or required to be made prior to the scheduled maturity of the
borrowings under the credit agreement (provided that up to $993,000 of
non-cash compensation expense accrued prior to August 25, 2011 may be added
back notwithstanding that cash payments may be required to be made in respect
thereof prior to the scheduled maturity of the borrowings) (see line item
captioned "Deferred Contingent Compensation Expense" in the schedules below),
(10) up to $3,000,000 of expenses, charges or losses resulting from certain
Peru investments (see line item captioned "Peru Investment Expenses, Charges
or Losses" in the schedules below), (11) the non-cash portion of any
non-recurring write-offs or write-downs as required in accordance with GAAP
(see line item captioned "Non-Recurring Write-Offs under GAAP" in the
schedules below), (12) advisory fees and related expenses paid to advisory
firms in connection with "permitted acquisitions" (see line item captioned
"Acquisition Advisory Fees" in the schedules below), (13) certain specified
"permitted add-backs" (i.e., (A) up to $15,000,000 (less the amount of certain
permitted pro forma adjustments to "consolidated EBITDA" in connection with
material acquisitions) of charges incurred during any 12-month period in
connection with (i) reductions in workforce, (ii) contract losses,
discontinued operations, shutdown expenses and cost reduction initiatives,
(iii) transaction expenses incurred in connection with potential acquisitions
and divestitures, whether or not consummated, and (iv) restructuring charges
and transaction expenses incurred in connection with certain transactions with
Playtech Limited or its affiliates, and (B) reasonable and customary costs
incurred in connection with amendments to the credit agreement) (see line item
captioned "Specified Permitted Add-Backs" in the schedules below) (provided
that the foregoing items (1) through (13) do not include write-offs or
write-downs of accounts receivable or inventory and, except with respect to
"permitted add-backs", any write-off or write-down to the extent it is in
respect of cash payments to be made in a future period), (14) to the extent
treated as an expense in the period paid or incurred, certain payments, costs
and obligations made or incurred by us in connection with any award of a
concession to operate the instant ticket lottery in Italy, including any
up-front fee required under the applicable tender process (see line item
captioned "Italian Concession Obligations" in the schedules below), (15)
restructuring charges, transaction expenses and shutdown expenses incurred in
connection with the disposition of all or part of our racing and venue
management businesses, together with any charges incurred in connection with
discontinued operations and cost-reduction initiatives associated with such
disposition, in an aggregate amount (for all periods combined) not to exceed
$7,325,000 (see line item captioned "Racing Disposition Charges and Expenses"
in the schedules below) and (16) up to 5,250,000 pounds Sterling during any
four-quarter period of expenses or charges incurred in connection with the
payment of license royalties or other fees to Playtech Limited or its
affiliates and for software services provided to Global Draw or Games Media by
Playtech Limited or its affiliates (see line item captioned "Playtech
Royalties and Fees" in the schedules below), minus, to the extent included in
the statement of such consolidated net income for such period, the sum of (1)
interest income, (2) extraordinary income or gains determined in accordance
with GAAP and (3) income or gains with respect to earn-out payments with
respect to acquisitions referred to above (see line item captioned "Income on
Earn-Outs for Permitted Acquisitions" in the schedules below), provided that
the aggregate amount of "consolidated EBITDA" that is attributable to the
Company's interest in its Italian joint venture that would not have otherwise
been permitted to be included in "consolidated EBITDA" prior to giving effect
to the March 11, 2011 amendment to the credit agreement will be capped at
$25,000,000 in any period of four consecutive fiscal quarters (or $30,000,000
in the case of any such period ending on or prior to June 30, 2012).
"Consolidated EBITDA" is also subject to certain adjustments in connection
with material acquisitions and dispositions as provided in the credit
agreement. The foregoing definitions of "consolidated net income" and
"consolidated EBITDA" are qualified in their entirety by the full text of such
definitions in our credit agreement which was amended and restated on August
25, 2011, a copy of which is attached as Exhibit 10.1 to our Current Report on
Form 8-K filed with the Securities and Exchange Commission on August 31, 2011.

Free cash flow, as included herein, represents net cash provided by operating
activities less total capital expenditures (which includes lottery and gaming
systems expenditures and other intangible assets and software expenditures).
Free cash flow is a non-GAAP financial measure that is presented herein as a
supplemental disclosure and is reconciled to net cash provided by operating
activities in a schedule below.

EBITDA from equity investments, as included herein, represents our share of
EBITDA from equity investments, which is defined as equity in earnings from
our equity investments (whether or not any such earnings have been distributed
to us) plus income tax expense, depreciation and amortization expense and
interest (income) expense, net of other. EBITDA from equity investments is a
non-GAAP financial measure that is presented herein as a supplemental
disclosure and is reconciled to earnings from equity investments in a schedule
below.

The Company's management uses the foregoing non-GAAP financial measures in
conjunction with GAAP financial measures to: monitor and evaluate the
performance of the Company's business operations, as well as the performance
of its equity investments, which have become a more significant part of the
Company's business; facilitate management's internal comparisons of the
Company's historical operating performance of its business operations;
facilitate management's external comparisons of the results of its overall
business to the historical operating performance of other companies that may
have different capital structures and debt levels; review and assess the
operating performance of the Company's management team; analyze and evaluate
financial and strategic planning decisions regarding future operating
investments; and plan for and prepare future annual operating budgets and
determine appropriate levels of operating investments. Accordingly, the
Company's management believes that these non-GAAP financial measures are
useful to investors to provide them with disclosures of the Company's
operating results on the same basis as that used by the Company's management.

In addition, the Company's management believes that attributable EBITDA is
helpful in assessing the overall operating performance of the Company and its
equity investments and highlighting trends in the Company's and its equity
investments' core businesses that may not otherwise be apparent when relying
solely on GAAP financial measures, because this non-GAAP financial measure
eliminates from the Company's and its equity investments' earnings financial
items that management believes have less bearing on the Company's and its
equity investments' performance, such as income tax expense, depreciation and
amortization expense and interest (income) expense. Moreover, management
believes attributable EBITDA is useful to investors because a significant and
increasing amount of the Company's business is from its equity investments.
Management further believes that attributable EBITDA and free cash flow
provide useful information regarding the Company's liquidity and its ability
to service debt and fund investments. Management believes that EBITDA from
equity investments is helpful in monitoring the financial performance of the
Company's equity investments and eliminates from the equity investments'
earnings financial items that management believes have less bearing on the
equity investments' performance.

The Company's management also believes attributable EBITDA is useful to
investors because the definition is derived from the definition of
"consolidated EBITDA" in our credit agreement, which is used to calculate the
Company's compliance with the financial covenants contained in the credit
agreement. Moreover, attributable EBITDA and free cash flow (calculated by
subtracting total capital expenditures (which includes lottery and gaming
systems expenditures and other intangible assets and software expenditures)
from attributable EBITDA) are metrics used in determining performance-based
bonuses (subject to certain additional adjustments in the discretion of the
Compensation Committee (e.g., to take into account changes in applicable
accounting rules during the year)).

Accordingly, the Company's management believes that the presentation of the
non-GAAP financial measures, when used in conjunction with GAAP financial
measures, provides both management and investors with financial information
that can be useful in assessing the Company's financial condition and
operating performance.

The non-GAAP financial measures used herein should not be considered in
isolation of, as a substitute for, or superior to, the financial information
prepared in accordance with GAAP. The non-GAAP financial measures as defined
in this press release may differ from similarly titled measures presented by
other companies. The non-GAAP financial measures, as well as other information
in this press release, should be read in conjunction with the Company's
financial statements filed with the Securities and Exchange Commission.



SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share amounts)
                            Three Months Ended        Nine Months Ended
                            September 30,             September 30,
                            2012         2011         2012         2011
Revenue:
Instant tickets             $124,434     $126,693     $367,385     $370,972
Services                   82,622       81,429       261,543      237,272
Sales                      20,421       14,617       62,431       31,399
Total revenue               227,477      222,739      691,359      639,643
Operating expenses:
Cost of instant             73,085       71,785       211,468      211,151
tickets^(1)
Cost of services ^(1)       42,947       42,562       134,079      122,944
Cost of sales^(1)           12,784       10,332       43,949       21,383
Selling, general and        44,383       47,660       137,726      130,640
administrative
Employee termination and    1,830        1,030        10,751       1,030
restructuring
Depreciation and            39,241       27,994       108,845      87,902
amortization
Operating income           13,207       21,376       44,541       64,593
Other (income) expense:
Interest expense           25,990       26,297       75,073       79,161
Earnings from equity        (5,702)      (8,895)      (21,462)     (27,469)
investments
Early extinguishment of     15,464       4,185        15,464       4,185
debt
Other (income) expense,     (537)        1,711        93           (159)
net
Total other expense         35,215       23,298       69,168       55,718
Income (loss) before        (22,008)     (1,922)      (24,627)     8,875
income tax expense
Income tax expense          5,125        2,202        13,276       12,912
Net income (loss)           $(27,133)    $ (4,124)   $(37,903)    $ (4,037)
Net income (loss) per
share:
Basic net income (loss)     $  (0.30)  $  (0.04)  $  (0.41)  $ 
                                                                   (0.04)
Diluted net income (loss)   $  (0.30)  $  (0.04)  $  (0.41)  $ 
                                                                   (0.04)
Weighted average number of
shares:
Basic shares               89,950       92,125       91,723       92,027
Diluted shares             89,950       92,125       91,723       92,027
(1) Exclusive of depreciation and amortization.



SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET DATA
(Unaudited, in thousands)
                                               September 30,  December 31,
                                               2012           2011
Assets:
Cash and cash equivalents                      $   135,954  $  104,402
Other current assets                           326,138        301,154
Property and equipment, net                    396,400        426,488
Equity investments                             321,005        340,494
Other long-term assets                         1,018,538      989,373
 Total assets                                $ 2,198,035   $ 2,161,911
Liabilities and Stockholders' Equity:
Current portion of long-term debt              $   14,978  $   26,191
Other current liabilities                      211,926        210,902
Long-term debt, excluding current portion      1,454,088      1,364,476
Other long-term liabilities                    116,906        116,628
Stockholders' equity                           400,137        443,714
 Total liabilities and stockholders' equity  $ 2,198,035   $ 2,161,911



SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED SEGMENT OPERATING DATA
(Unaudited, in thousands)
                       Three Months Ended September 30, 2012
                                                        Unallocated
                       Printed     Lottery             Corporate
                       Products    Systems     Gaming   Expense      Totals
Instant tickets        $ 124,434  $    -  $     $       $
                                               -         -          124,434
Services               -           49,391      33,231   -            82,622
Sales                  2,932       12,469      5,020    -            20,421
 Total revenue      127,366     61,860      38,251   -            227,477
Cost of instant        73,085      -           -        -            73,085
tickets^(1)
Cost of services ^(1)  -           27,852      15,095   -            42,947
Cost of sales^(1)      1,844       6,997       3,943    -            12,784
Selling, general and   10,567      5,658       8,166    14,085       38,476
administrative
Stock-based            863         583         463      3,998        5,907
compensation
Employee termination   287         -           1,543    -            1,830
and restructuring
Depreciation and       10,426      11,877      16,788   150          39,241
amortization
Operating income       $  30,294  $  8,893   $        $          $ 
(loss)                                         (7,747)  (18,233)    13,207
                       Three Months Ended September 30, 2011
                                                        Unallocated
                       Printed     Lottery             Corporate
                       Products    Systems     Gaming   Expense      Totals
Instant tickets        $ 126,693  $    -  $     $       $
                                               -         -          126,693
Services               -           49,944      31,485   -            81,429
Sales                  2,953       9,640       2,024    -            14,617
 Total revenue      129,646     59,584      33,509   -            222,739
Cost of instant        71,785      -           -        -            71,785
tickets ^(1)
Cost of services^(1)   -           26,899      15,663   -            42,562
Cost of sales^(1)      1,906       6,813       1,613    -            10,332
Selling, general and   12,173      6,104       3,885    19,907       42,069
administrative
Stock-based            856         522         353      3,860        5,591
compensation
Employee termination   -           -           1,030    -            1,030
and restructuring
Depreciation and       8,177       11,939      7,744    134          27,994
amortization
Operating income       $  34,749  $  7,307   $       $          $ 
(loss)                                         3,221    (23,901)    21,376
(1) Exclusive of depreciation and
amortization.



SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED SEGMENT OPERATING DATA
(Unaudited, in thousands)
                     Nine Months Ended September 30, 2012
                                                       Unallocated
                     Printed     Lottery              Corporate
                     Products    Systems    Gaming     Expense      Totals
Instant tickets      $ 367,385  $       $       $       $
                                 -         -          -          367,385
Services             -           153,511    108,032    -            261,543
Sales                8,177       37,446     16,808     -            62,431
 Total revenue    375,562     190,957    124,840    -            691,359
Cost of instant      211,468     -          -          -            211,468
tickets^(1)
Cost of services     -           84,174     49,905     -            134,079
^(1)
Cost of sales^(1)    5,245       23,681     15,023     -            43,949
Selling, general     31,745      17,791     21,309     49,352       120,197
and administrative
Stock-based          2,544       1,701      1,306      11,978       17,529
compensation
Employee
termination and      4,794       -          5,957      -            10,751
restructuring
Depreciation and     31,242      35,953     41,201     449          108,845
amortization
Operating income     $  88,524  $ 27,657  $          $          $ 
(loss)                                      (9,861)   (61,779)    44,541
                     Nine Months Ended September 30, 2011
                                                       Unallocated
                     Printed     Lottery              Corporate
                     Products    Systems    Gaming     Expense      Totals
Instant tickets      $ 370,972  $       $       $       $
                                 -         -          -          370,972
Services             -           150,356    86,916     -            237,272
Sales                6,810       22,447     2,142      -            31,399
 Total revenue    377,782     172,803    89,058     -            639,643
Cost of instant      211,151     -          -          -            211,151
tickets^(1)
Cost of services     -           79,087     43,857     -            122,944
^(1)
Cost of sales^(1)    4,150       15,585     1,648      -            21,383
Selling, general     33,950      15,047     9,620      56,730       115,347
and administrative
Stock-based          2,571       1,375      1,180      10,167       15,293
compensation
Employee
termination and      -           -          1,030      -            1,030
restructuring
Depreciation and     24,745      35,185     27,581     391          87,902
amortization
Operating income     $ 101,215  $ 26,524  $  4,142  $          $ 
(loss)                                                 (67,288)    64,593
(1) Exclusive of depreciation and
amortization.



SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
RECONCILIATION OF NET INCOME TO ATTRIBUTABLE EBITDA
RECONCILIATION OF EARNINGS FROM EQUITY INVESTMENTS TO EBITDA FROM EQUITY
INVESTMENTS
(Unaudited, in thousands)
                          Three Months Ended         Nine Months Ended
                          September 30,              September 30,
                          2012           2011        2012         2011
Net income (loss)         $(27,133)      $(4,124)    $(37,903)    $ (4,037)
Add: Income tax           5,125          2,202       13,276       12,912
expense
Add: Depreciation and     39,241         27,994      108,845      87,902
amortization
Add: Interest expense     25,990         26,297      75,073       79,161
Add: Early
extinguishment of         15,464         4,185       15,464       4,185
debt
Add: Other (income)       (537)          1,711       93           (159)
expense
EBITDA                    $ 58,150      $58,265     $174,848     $179,964
Credit Agreement
adjustments:
Add: Debt-Related         $ 15,509      $ 4,185    $ 15,564    $  4,306
Fees and Charges ^(1)
Add: Amortization of      -              -           -            -
Intangibles
Add: Earn-outs for
Permitted                 -              -           -            105
Acquisitions
Add: Extraordinary
Charges or Losses         -              -           -            -
under GAAP
Add: Non-Cash
Stock-Based               5,907          5,591       17,529       15,293
Compensation Expenses
Add: Deferred
Contingent                -              -           -            993
Compensation Expense
Add: Non-Recurring
Write-Offs under          -              324         -            324
GAAP
Add: Acquisition          485            1,587       1,156        1,587
Advisory Fees
Add: Specified
Permitted Add-Backs       2,339          3,305       12,124       6,097
^(2)
Add: Italian
Concession                -              -           -            -
Obligations
Add: Racing
Disposition Charges       -              18          -            96
and Expenses
Add: Playtech             1,834          494         5,364        1,653
Royalties and Fees
Less: Interest Income     (296)          (69)        (356)        (274)
Less: Extraordinary
Income or Gains under     -              -           -            -
GAAP
Less: Income on
Earn-Outs for             -              -           -            -
Permitted
Acquisitions
Adjustments to
conform to Credit
Agreement definition:
Add/Less: Other           537            (1,711)     (93)         159
(income) expense ^(3)
Less: Early
extinguishment of         (15,464)       (4,185)     (15,464)     (4,185)
debt
Less: Earnings from       (5,702)        (8,895)     (21,462)     (27,469)
equity investments
Add: EBITDA from          19,202         22,751      63,535       68,525
equity investments
Attributable EBITDA       $ 82,501      $81,660     $252,745     $247,174
EBITDA from equity
investments ^(4):
Earnings from equity      $  5,702     $ 8,895    $ 21,462    $ 27,469
investments
Add: Income tax           2,477          3,641       9,250        9,912
expense
Add: Depreciation and     10,192         9,259       29,884       27,494
amortization
Add: Interest
expense, net of           831            956         2,939        3,650
other
EBITDA from equity        $ 19,202      $22,751     $ 63,535    $ 68,525
investments
(1) Amount reflects write-off of unamortized deferred financing costs in
connection with early extinguishment of debt and other debt-related fees and
charges.
(2) Amount includes management transition expenses, transaction expenses and
restructuring expenses.
(3) Amounts include foreign exchange transactions, interest income, minority
interest and other items.
(4) EBITDA from equity investments includes results from the Company's
participation in Lotterie Nazionali S.r.l., Roberts Communications Network,
LLC, CSG Lottery Technology (Beijing) Co. Ltd., Sportech Plc, Sciplay (through
January 23, 2012), Guard Libang and Northstar Lottery Group, LLC (beginning
March 1, 2011).



SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CALCULATION OF FREE CASH FLOW
(Unaudited, in thousands)
                     Three Months Ended September   Nine Months Ended
                     30,                            September 30,
                     2012              2011         2012        2011
Net cash provided
by operating         $ 24,572         $ 55,044    $107,928    $152,627
activities
Less: Capital        (4,883)           (2,250)      (9,194)     (5,863)
expenditures
Less: Lottery and
gaming systems       (11,367)          (11,781)     (30,723)    (33,972)
expenditures
Less: Other
intangible assets    (13,408)          (10,164)     (40,109)    (28,536)
and software
expenditures
 Total Capital    $(29,658)         $(24,195)    $ (80,026)  $ (68,371)
Expenditures
Free cash flow       $ (5,086)        $ 30,849    $ 27,902   $ 84,256
For the third quarter ended September 30, 2012, the Company received no return
of capital payments from its equity
investments. For the third quarter ended September 30, 2011, the Company
received a return of capital payment from
its equity investment in LNS of $0.4 million.
For the second quarter ended June 30, 2012, the Company received return of
capital payments from its equity
investments in LNS of $15.1 million and ITL of $0.9 million. For the second
quarter ended June 30, 2011, the
Company received return of capital payments from its equity investment in LNS
of $6.3 million.
For the first quarter ended March 31, 2012, the Company received return of
capital payments from its
equity investment in ITL of $2.2 million. For the first quarter ended March
31, 2011, the Company received
no return of capital payments from its equity investments.
These items were not included in the Company's Free Cash Flow metric.



SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
KEY PERFORMANCE INDICATORS
(Unaudited, in millions, except terminals and ASP)
                    Three Months Ended September  Nine Months Ended September
                    30,                           30,
                    2012             2011         2012            2011
Italy - Gratta e
Vinci ^(1):
Retail Sales        2,243.0          2,393.0      7,296.0         7,764.0
(Euros) ^(1)
China - China
Sports Lottery
^(1):
Retail Sales (RMB)  3,897.0          4,730.0      13,480.0        14,697.0
Tickets Sold        510.0            651.0        1,801.0         2,097.0
ASP (RMB)           7.64             7.27         7.48            7.01
                    As of September 30,
Terminal installed
base at end of      2012             2011
period:
Global Draw        24,752           26,632
Games Media        2,514            3,641
Barcrest            4,352            5,267
(1) Information provided by
third-party lottery operators.



SOURCE Scientific Games Corporation

Website: http://www.scientificgames.com
 
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