Scientific Games Announces Fourth Quarter and Full Year 2012 Results

     Scientific Games Announces Fourth Quarter and Full Year 2012 Results

Revenue Growth of 4% in the Fourth Quarter and 7% in 2012

Attributable EBITDA Increase of 13% in the Fourth Quarter and 5% in 2012

PR Newswire

NEW YORK, March 11, 2013

NEW YORK, March 11, 2013 /PRNewswire/ -- Scientific Games Corporation (Nasdaq:
SGMS) today announced results for the fourth quarter and year ended December
31, 2012.

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

                            December 31,        December 31,
                            2012       2011     2012        2011
Revenue                     $249.2     $239.1   $940.6      $878.7
Operating (loss) income     (6.3)      19.2     38.2        83.8
Attributable EBITDA         90.6       80.3     343.3       327.5
Net loss                    (24.7)     (8.5)    (62.6)      (12.6)
Net loss per share          (0.29)     (0.09)   (0.70)      (0.14)
Total capital expenditures  (31.3)     (23.5)   (111.3)     (91.9)
Free cash flow              17.5       (5.1)    45.4        79.2

Attributable EBITDA and free cash flow 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

  oIn January 2013, Scientific Games entered into an agreement to acquire WMS
    Industries Inc. (NYSE: WMS) ("WMS"), a leading supplier of gaming machines
    and interactive gaming systems and content; the acquisition would combine
    two leading companies in the lottery and gaming industries to create a
    company with the ability to offer an extensive range of products and
    services to public and private sector lottery and gaming customers around
    the world
  oIn December 2012, a consortium in which Scientific Games owns a 16.5%
    equity interest, was provisionally awarded a 12-year concession for the
    exclusive rights to the production, operation and management of instant
    ticket lotteries in Greece; Scientific Games expects to serve as the
    exclusive supplier of instant tickets over the term of the concession
  oScientific Games' U.S. instant ticket and lottery systems customers'
    retail sales increased 5.1% and 10.9%, respectively, in the fourth 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 approximately 4% and 1%, respectively, in the fourth quarter of
    2012 versus the prior-year period, excluding gross win attributable to the
    William Hill contract in the prior-year period
  oThe Company executed the following contracts:

       oFive-year contract extension with the Connecticut Lottery to continue
         providing lottery systems and services until May 2018
       oTwo-year contract with the Iowa Lottery to supply instant tickets
         through December 2014
       oAgreement with the Maryland Lottery to provide Properties Plus^®
         internet-based player loyalty rewards program through June 2016

  oScientific Games repurchased 2,735,233 of its common shares during the
    fourth quarter and a total of 9,157,139 shares during 2012

"2012 was a productive year for Scientific Games, with growth in revenue and
attributable EBITDA, and the securing of a number of key contracts," Chairman
and Chief Executive Officer A. Lorne Weil commented. "We remain focused on the
execution of our numerous business development opportunities as lotteries and
gaming operators continue to pursue new sources of revenue."

Mr. Weil continued, "We are also excited about the pending acquisition of WMS,
which will combine our respective game content, technology, operational
capabilities, geographic footprints and financial profiles to create an
enterprise poised to capitalize on significant growth opportunities across our
global lottery and gaming businesses. The transaction is also expected to be
immediately accretive, creating value for our stockholders."

Jeffrey S. Lipkin, Senior Vice President and Chief Financial Officer, added,
"Our solid fourth quarter results reflected the benefits of our diverse,
participation-based business model, which resulted in increases in revenue,
attributable EBITDA and free cash flow. During 2012, we were also pleased to
return over $68 million to stockholders in the form of share repurchases."

Business Update

Our fourth quarter results reflected strength across the majority of our
diverse global businesses. Revenue increased over 4% and attributable EBITDA
rose 13%. We benefitted from solid lottery retail sales, not only in the U.S.
but also notably in Italy, where instant ticket sales grew 3.9%.

Our U.S. customers' retail sales of instant tickets increased 5.1% in the
quarter and their sales of draw games grew 10.9%. Instant ticket sales
continued to be propelled by strong performance in larger states, and draw
sales benefited from a record Powerball^® jackpot of $587.5 million in the
quarter. These increases capped off a successful year for the U.S. lottery
industry, with our customers' instant ticket retail sales increasing 9.1% for
2012 and our Lottery Systems customers' draw game retail sales growing 9.7%.

Instant ticket retail sales in China remained weak in the fourth quarter,
although improving slightly compared to the third quarter's year-over-year
results. We continue to believe there is sustained consumer demand for lottery
products in China, as retail sales of the overall lottery segment grew by 18%
in 2012, but that competition from other lottery products is impacting instant
ticket sales. We remain focused on improving sales trends by expanding the
lottery retailer network and increasing our involvement in the game selection
process.

As we mentioned last quarter, video gaming was launched in Illinois in early
October, with statewide monitoring and control provided by our central system.
The licensing approval process is ongoing and we believe the initial roll-out
has proven successful, with approximately 4,200 machines installed and
connected to our central system in over 1,000 locations.

During the quarter, our U.K. gaming business again experienced an increase in
gross win per terminal per day; however, the loss of the William Hill contract
and the 2011 closing of our over-the-counter business, along with a reduction
in U.K. pub revenue and revenue generated outside the U.K., negatively
impacted overall gaming revenue. While this is disappointing, we are pleased
with our strong U.K. LBO machine performance, as evidenced by Ladbrokes'
results for fiscal 2012. Ladbrokes' gross win per machine per week and gross
win per shop per week increased by 10% and 11.5%, respectively, compared to
fiscal 2011.

Looking ahead, while we expect the first half of the year to start off more
slowly, we anticipate momentum will accelerate as the year progresses based on
several business developments and initiatives which are planned to commence
later in 2013.

Late last year, the consortium in Greece in which we own a 16.5% equity
interest, was provisionally awarded a 12-year concession for the exclusive
rights to the operation and management of instant ticket lotteries in Greece,
with Scientific Games expected to be the exclusive instant ticket supplier.
We believe that implementing the best practices we have successfully used with
lotteries around the world will result in the successful re-launch of instant
tickets in Greece.

We have made progress in our interactive business as well, with the Maryland
Lottery signing on to become our eighth Properties Plus customer. 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.

The most game-changing development is our pending acquisition of WMS, which we
believe will be transformative for our Company. The merger of leading
companies in lottery instant tickets, systems, gaming machines and interactive
gaming would enable the combined company to offer a comprehensive scope of
products and services to both government-sponsored and commercial customers in
the lottery and gaming industries.

In addition to significantly enhancing our portfolio of lottery and gaming
products and services, we believe the combination will broaden our revenue and
geographic diversification, build our scale in gaming and create a compelling
position in interactive gaming, all while delivering meaningful value to our
stockholders through the deal's expected immediate earnings per share
accretion, the monetization of our tax attributes, significantly improved free
cash flow and anticipated synergies. Scientific Games and WMS have many shared
and complementary core competencies, which we believe we can capitalize on
immediately following closing.

Having just recently announced the proposed acquisition, we are in the early
stages of the integration planning process. In addition, WMS has filed its
amended preliminary proxy statement for the transaction and we believe we are
making meaningful progress towards securing the necessary regulatory
approvals. The completion of the WMS acquisition remains subject to the
approvals of WMS stockholders and gaming regulatory authorities and other
customary closing conditions, and there can be no assurance that the merger
will be completed.

In connection with the pending WMS acquisition, we currently expect to incur
regulatory costs, professional fees and other expenses totaling approximately
$4.0 million to $6.0 million in the first quarter of 2013, with additional
transaction-related fees and expenses anticipated to be incurred throughout
the balance of 2013.

Fourth Quarter 2012 Financial Results

Revenue

  oRevenue increase of 4.3% reflects growth in Printed Products and Lottery
    Systems segments, partially offset by a decline in Gaming

Operating Income

  oDecrease in operating income primarily reflects $33.8 million increase in
    depreciation and amortization, partially offset by a $6.8 million impact
    of a higher and more profitable revenue mix, $1.7 million decrease in
    selling, general and administrative and $0.2 million reduction in employee
    termination and restructuring
  oHigher depreciation and amortization principally reflects:

       o$24.0 million of accelerated depreciation of gaming terminals and
         software
       o$5.8 million of asset impairment charges on Lottery Systems contracts

  oReduction in selling, general and administrative primarily due to:

       o$3.6 million decrease in accrual related to Asia-Pacific business
         incentive compensation plan
       o$1.1 million reduction in professional fees
       oDecreases partially offset by $1.4 million increase in accounts
         receivable reserves, $0.8 million increased severance expense, $0.8
         million of incremental overhead from acquisition of Provoloto and
         $0.7 million increased compensation expense primarily related to
         growth initiatives

Net Income 

  oDecline in net income reflected the decrease in operating income and was
    partially offset by the following:

       o$4.7 million increase in earnings from equity investments, primarily
         reflecting higher results from RCN and Italy, partially offset by
         lower results from Sportech
       o$2.3 million increase in other income principally due to decline in
         foreign exchange transaction expense
       o$1.7 million decrease in income tax expense

Attributable EBITDA

  oEBITDA from equity investments decreased by $0.3 million, as the $2.0
    million increase in results from Italy was offset primarily by lower
    results from China and RCN
  oAttributable EBITDA increased by $10.2 million

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

                  December 31,        December 31,
                  2012       2011     2012           2011
Printed Products  $129.6     $125.2   $34.1          $32.2
Lottery Systems   80.7       69.5     9.0            11.1
Gaming            38.9       44.4     (25.4)         2.8

Printed Products

Revenue

  oRevenue growth of 3.6% was driven primarily by a $5.5 million increase in
    sales to international customers principally in Italy and the U.K., a $1.6
    million increase in sales to U.S. customers that purchase tickets on a
    percentage of sales basis, including cooperative services customers, and a
    $1.5 million benefit from the acquisition of Provoloto
  oRevenue increases were partially offset by the following:

       o$2.9 million decrease in licensed properties business
       o$2.0 million decrease in revenue from U.S. customers that compensate
         us based on a price per thousand units basis

Operating Income

  oOperating income increase reflected:

       o$3.2 million impact of a higher and more profitable mix of revenue
       o$1.4 million decrease in selling, general and administrative,
         principally due to a reduction in the accrual for incentive
         compensation expense

  oThe increase in operating income was partially offset by the following:

       o$1.7 million increase in depreciation and amortization, primarily
         related to a write-down of software development costs
       o$1.1 million of employee termination and restructuring costs related
         to the closing of our Australian printing facility

Lottery Systems

Revenue

  oRevenue increase of 16.1% primarily reflected $10.8 million of higher
    sales revenue from increased demand for equipment and systems from both
    U.S. and international customers
  oService revenue increased $0.6 million, as $4.1 million increase in U.S.
    revenue, driven in part by a record Powerball jackpot, was substantially
    offset by $3.0 million decline in international revenue principally
    attributable to $1.8 million decrease from China

Operating Income

  oDecrease in operating income primarily reflects $6.8 million increase in
    depreciation and amortization, resulting principally from $5.8 million in
    non-cash asset impairment charges
  oOperating income decrease partially offset by $4.3 million impact of
    higher revenue and $0.4 million decrease in selling, general and
    administrative

Gaming

Revenue

  oRevenue decrease of 12.3% principally resulted from lower service revenue
    that reflects $2.0 million impact from loss of the William Hill contract,
    $1.9 million reduction primarily due to exiting Austrian over-the-counter
    business, $1.6 million decline in results outside the U.K. and $1.0
    million reduction in revenue from our pub business
  oDecline in sales revenue primarily reflects exit from Barcrest's analog
    machine business
  oRevenue decline partially offset by $1.3 million increase in U.K. LBO
    business, which benefitted from increase in gross win per terminal per day

Operating Income

  oIn addition to the impact from revenue decline, decrease in operating
    income primarily due to:

       o$25.3 million increase in depreciation and amortization 
       o$3.2 million increase in selling, general and administrative

  oIncrease in depreciation and amortization principally reflects:

       o$12.5 million write-down of terminals and software in our pub
         business
       o$10.2 million write-down of LBO terminals primarily related to
         customers transitioning to newer generation machines

  oIncrease in selling, general and administrative primarily due to:

       o$1.8 million increase in professional fees
       o$1.4 million increase in accounts receivable reserves

Liquidity and Capital Resources

  oAt December 31, 2012, cash and cash equivalents of $109.0 million and
    availability under revolving credit facility of $206.2 million
  oTotal debt of $1,468.2 million as of December 31, 2012 increased from
    $1,390.7 million at December 31, 2011, primarily reflecting the issuance
    of $300 million of 2020 Notes and the redemption of $200 million of 2016
    Notes during the third quarter, and the reduction of our China loans by
    approximately $15.7 million during 2012
  oFree cash flow for the fourth quarter was $17.5 million, compared to
    ($5.1) million in prior-year quarter, principally due to higher margins,
    lower selling general and administrative expenses and reduced cash
    interest payments, partially offset by increased capital expenditures
  oReceived return of capital payments from equity investments in LNS of $5.9
    million and ITL of $0.6 million in fourth quarter of 2012; these amounts
    are not included in free cash flow metric
  oReceived $11.3 million in cash dividends from equity investments in fourth
    quarter of 2012
  oCommon stock repurchases:

       oFourth quarter 2012: 2,735,233 shares for approximately $21.1 million
       oFiscal 2012: 9,157,139 shares for approximately $68.5 million

Pending Acquisition of WMS Industries Inc.

As previously announced on January 31, 2013, Scientific Games entered into an
agreement to acquire WMS for $26.00 in cash per common share, or approximately
$1.5 billion in the aggregate.

Completion of the transaction remains subject to approvals by WMS stockholders
and gaming regulatory authorities and other customary closing conditions.
Scientific Games is in the process of filing for the required gaming
approvals.On March 8, 2013, WMS filed an amended preliminary proxy statement
with the Securities and Exchange Commission relating to a special meeting of
WMS' stockholders to consider and approve the merger agreement. On March 11,
2013, Scientific Games received notice from the Federal Trade Commission of
early termination of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 ("HSR Act") in connection with the merger.
Termination of the HSR Act waiting period satisfies one of the conditions
required for completion of the merger. Scientific Games has obtained
commitments for a term loan facility of $2.3 billion and a revolving credit
facility of $300 million to finance the acquisition and continues to expect
the transaction to close by the end of 2013. However, no assurance can be
given that the merger will be completed.

Conference Call Details

Scientific Games will host a conference call today at 5:00 pm Eastern 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) 202-0886 (U.S. and Canada) or (617) 213-8841
(international). The conference ID is 56522020.

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," "should," "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 our Northstar joint venture to meet the net income
targets or otherwise realize the anticipated benefits under its private
management agreement with the Illinois Lottery; the seasonality of our
business; inability to obtain the approvals required to complete the merger
with WMS; failure to complete the merger with WMS or, if completed, failure to
achieve the intended benefits of such merger; 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 under our 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 the Company's 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 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 reference to 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
investees' 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 investees' earnings financial
items that management believes have less bearing on the Company's and its
equity investees' 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 through 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 investees'
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        Twelve Months Ended December
                        December 31,              31,
                        2012         2011         2012           2011
Revenue:
Instant tickets         $       $       $         $     
                        126,257      122,303      493,642        493,275
Services               90,774       94,429       352,317        331,701
Sales                  32,212       22,347       94,643         53,746
Total revenue           249,243      239,079      940,602        878,722
Operating expenses:
Cost of instant         71,080       70,414       282,548        281,565
tickets^(1)
Cost of services ^(1)   47,029       48,430       181,108        171,374
Cost of sales^(1)       21,104       16,957       65,053         38,340
Selling, general and    51,087       52,382       188,813        183,022
administrative
Employee termination    751          967          11,502         1,997
and restructuring
Depreciation and        64,525       30,701       173,370        118,603
amortization
Operating income        (6,333)      19,228       38,208         83,821
(loss)
Other income
(expense):
Interest expense       (24,935)     (25,542)     (100,008)      (104,703)
Earnings from equity    6,611        1,922        28,073         29,391
investments
Early extinguishment    -            -            (15,464)       (4,185)
of debt
Other income            1,278        (1,070)      1,185          (911)
(expense), net
Total other expense     (17,046)     (24,690)     (86,214)       (80,408)
Income (loss) before    (23,379)     (5,462)      (48,006)       3,413
income tax expense
Income tax expense      1,345        3,071        14,621         15,983
Net income (loss)       $       $       $         $     
                        (24,724)      (8,533)    (62,627)       (12,570)
Net income (loss) per
share:
Basic net income        $       $       $        $      
(loss)                   (0.29)     (0.09)    (0.70)        (0.14)
Diluted net income      $       $       $        $      
(loss)                   (0.29)     (0.09)    (0.70)        (0.14)
Weighted average
number of shares:
Basic shares           84,902       92,187       90,011         92,068
Diluted shares         84,902       92,187       90,011         92,068
(1) Exclusive of depreciation and
amortization.



SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET DATA
(Unaudited, in thousands)
                                               December 31,    December 31,
                                               2012            2011
Assets:
Cash and cash equivalents                      $   109,015  $   104,402
Other current assets                           375,878         301,154
Property and equipment, net                    376,877         426,488
Equity investments                             316,234         340,494
Other long-term assets                         1,008,904       989,373
 Total assets                                $  2,186,908   $  2,161,911
Liabilities and Stockholders' Equity:
Current portion of long-term debt              $    16,458  $    26,191
Other current liabilities                      239,889         210,902
Long-term debt, excluding current portion      1,451,708       1,364,476
Other long-term liabilities                    114,062         116,628
Stockholders' equity                           364,791         443,714
 Total liabilities and stockholders' equity  $  2,186,908   $  2,161,911



SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED SEGMENT OPERATING DATA
(Unaudited, in thousands)
                         Three Months Ended December 31, 2012
                                                         Unallocated
                         Printed   Lottery              Corporate
                         Products  Systems    Gaming     Expense      Totals
Instant tickets          $       $      $      $       $  
                         126,257    -       -       -        126,257
Services                 -         56,074     34,700     -            90,774
Sales                    3,349     24,646     4,217      -            32,212
 Total revenue        129,606   80,720     38,917     -            249,243
Cost of instant          71,080    -          -          -            71,080
tickets^(1)
Cost of services ^(1)    -         29,744     17,285     -            47,029
Cost of sales^(1)        2,324     16,594     2,186      -            21,104
Selling, general and     10,478    6,318      8,597      19,064       44,457
administrative
Stock-based              850       566        447        4,767        6,630
compensation
Employee termination     1,058     -          (307)      -            751
and restructuring
Depreciation and         9,711     18,521     36,144     149          64,525
amortization
Operating income (loss)  $      $      $        $         $   
                         34,105    8,977      (25,435)  (23,980)     (6,333)
                         Three Months Ended December 31, 2011
                                                         Unallocated
                         Printed   Lottery              Corporate
                         Products  Systems    Gaming     Expense      Totals
Instant tickets          $       $      $      $       $  
                         122,303    -       -       -        122,303
Services                 -         55,445     38,984     -            94,429
Sales                    2,854     14,081     5,412      -            22,347
 Total revenue        125,157   69,526     44,396     -            239,079
Cost of instant tickets  70,414    -          -          -            70,414
^(1)
Cost of services^(1)     -         29,929     18,501     -            48,430
Cost of sales^(1)        1,778     9,549      5,630      -            16,957
Selling, general and     11,880    6,689      5,349      22,219       46,137
administrative
Stock-based              868       602        259        4,516        6,245
compensation
Employee termination     -         -          967        -            967
and restructuring
Depreciation and         8,001     11,706     10,854     140          30,701
amortization
Operating income (loss)  $      $       $      $         $   
                         32,216    11,051     2,836      (26,875)     19,228
(1) Exclusive of depreciation and
amortization.



SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED SEGMENT OPERATING DATA
(Unaudited, in thousands)
                         Twelve Months Ended December 31, 2012
                                                         Unallocated
                         Printed   Lottery              Corporate
                         Products  Systems    Gaming     Expense      Totals
Instant tickets          $       $      $      $       $  
                         493,642    -       -       -        493,642
Services                 -         209,585    142,732    -            352,317
Sales                    11,526    62,092     21,025     -            94,643
 Total revenue        505,168   271,677    163,757    -            940,602
Cost of instant          282,548   -          -          -            282,548
tickets^(1)
Cost of services ^(1)    -         113,918    67,190     -            181,108
Cost of sales^(1)        7,569     40,275     17,209     -            65,053
Selling, general and     42,223    24,109     29,906     68,416       164,654
administrative
Stock-based              3,394     2,267      1,753      16,745       24,159
compensation
Employee termination     5,852     -          5,650      -            11,502
and restructuring
Depreciation and         40,953    54,474     77,345     598          173,370
amortization
Operating income (loss)  $       $       $        $         $   
                         122,629  36,634     (35,296)  (85,759)     38,208
                         Twelve Months Ended December 31, 2011
                                                         Unallocated
                         Printed   Lottery              Corporate
                         Products  Systems    Gaming     Expense      Totals
Instant tickets          $       $      $      $       $  
                         493,275    -       -       -        493,275
Services                 -         205,801    125,900    -            331,701
Sales                    9,664     36,528     7,554      -            53,746
 Total revenue        502,939   242,329    133,454    -            878,722
Cost of instant          281,565   -          -          -            281,565
tickets^(1)
Cost of services ^(1)    -         109,016    62,358     -            171,374
Cost of sales^(1)        5,928     25,134     7,278      -            38,340
Selling, general and     45,830    21,736     14,969     78,949       161,484
administrative
Stock-based              3,439     1,977      1,439      14,683       21,538
compensation
Employee termination     -         -          1,997      -            1,997
and restructuring
Depreciation and         32,746    46,891     38,435     531          118,603
amortization
Operating income (loss)  $       $       $      $         $   
                         133,431  37,575     6,978      (94,163)     83,821
(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          Twelve Months Ended
                             December 31,                December 31,
                             2012           2011         2012        2011
Net income (loss)            $           $        $        $   
                             (24,724)       (8,533)      (62,627)    (12,570)
Add: Income tax expense      1,345          3,071        14,621      15,983
Add: Depreciation and        64,525         30,701       173,370     118,603
amortization
Add: Interest expense        24,935         25,542       100,008     104,703
Add: Early                   -              -            15,464      4,185
extinguishment of debt
Add/Less: Other (income)     (1,278)        1,070        (1,185)     911
expense
EBITDA                       $          $        $        $   
                             64,803         51,851       239,651     231,815
Credit Agreement
adjustments:
Add: Debt-Related Fees       $         $        $       $    
and Charges ^(1)               28           851      15,592       5,157
Add: Amortization of         -              -            -           -
Intangibles
Add: Earn-outs for           -              -            -           105
Permitted Acquisitions
Add: Extraordinary
Charges or Losses under      -              -            -           -
GAAP
Add: Non-Cash
Stock-Based Compensation     6,630          6,245        24,159      21,538
Expenses
Add: Deferred Contingent     -              -            -           993
Compensation Expense
Add: Non-Recurring           228            66           228         390
Write-Offs under GAAP
Add: Acquisition             319            606          1,475       2,193
Advisory Fees ^(2)
Add: Specified Permitted     2,876          2,685        15,000      8,782
Add-Backs ^(2) (3)
Add: Italian Concession      -              -            -           -
Obligations
Add: Racing Disposition      -              -            -           96
Charges and Expenses
Add: Playtech Royalties      1,819          1,597        7,183       3,250
and Fees
Less: Interest Income        (29)           (74)         (385)       (348)
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 (income)     1,278          (1,070)      1,185       (911)
expense ^(4)
Less: Early                  -              -            (15,464)    (4,185)
extinguishment of debt
Less: Earnings from          (6,611)        (1,922)      (28,073)    (29,391)
equity investments
Add: EBITDA from equity      19,213         19,481       82,748      88,006
investments
Attributable EBITDA          $          $        $        $   
                             90,554         80,316       343,299     327,490
EBITDA from equity
investments ^(5):
Earnings from equity         $         $        $       $    
investments                  6,611           1,922      28,073      29,391
Add: Income tax expense      1,770          2,167        11,020      12,079
Add: Depreciation and        10,707         11,893       40,591      39,387
amortization
Add: Interest expense,       125            3,499        3,064       7,149
net of other
EBITDA from equity           $          $        $       $    
investments                  19,213         19,481       82,748      88,006
(1) Amounts reflect write-off of unamortized deferred financing costs in
connection with early extinguishment of debt and other debt-related fees and
charges.
(2) Amounts for the three and twelve months ended December 31, 2012 reflect a
reallocation of $157,000 from Specified Permitted Add-Backs to Acquisition
Advisory Fees as permitted in the Credit Agreement.
(3) Amounts include management transition expenses, transaction
expenses and restructuring expenses.
(4) Amounts include foreign exchange transactions, interest income,
minority interest and other items.
(5) EBITDA from equity investments includes results from the Company's
participation in Lotterie Nazionali S.r.l., Roberts Communications Network,
LLC, Beijing CITIC Scientific Games Technology Co., Ltd., Sportech Plc,
Sciplay (through January 23, 2012), Beijing Guard Libang Technology Co., Ltd.
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       Twelve Months Ended
                               December 31,             December 31,
                               2012          2011       2012         2011
Net cash provided by           $        $      $        $   
operating activities           48,822       18,451    156,750     171,078
Less: Capital expenditures     (3,005)       (2,714)    (12,199)     (8,577)
Less: Lottery and gaming       (14,054)      (9,487)    (44,776)     (43,459)
systems expenditures
Less: Other intangible assets  (14,247)      (11,312)   (54,357)     (39,848)
and software expenditures
 Total Capital              $         $       $         $   
Expenditures                   (31,306)     (23,513)  (111,332)   (91,884)
Free cash flow                 $        $      $       $    
                               17,516       (5,062)   45,418      79,194
For the fourth quarter ended December 31, 2012, the Company
received return of capital payments from its equity
investments in LNS of $5.9 million and ITL of $0.6 million. For the
fourth quarter ended December 31, 2011,
the Company received a return of capital payment from its equity
investment in LNS of $11.2 million.
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.
During the year ended December 31, 2011, the Company invested $31.2
million in its equity investment which
funds the acquisition of gaming terminals.
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 December  Twelve Months Ended
                              31,                          December 31,
                              2012             2011        2012        2011
Italy - Gratta e Vinci ^(1):
Retail Sales (Euros) ^(1)     2,468            2,376       9,764       10,151
China - China Sports Lottery
^(1):
Retail Sales (RMB)            4,541            5,334       18,021      20,031
Tickets Sold                  602              684         2,403       2,781
ASP (RMB)                     7.54             7.80        7.50        7.20
                              As of December 31,
Terminal installed base at    2012             2011
end of period:
Global Draw                  25,848           27,138
Games Media                  2,467            3,634
Barcrest                      2,723            4,936
(1) Information provided by third-party lottery
operators.



SOURCE Scientific Games Corporation

Website: http://www.scientificgames.com
 
Press spacebar to pause and continue. Press esc to stop.