Scientific Games Announces Second Quarter 2013 Results

            Scientific Games Announces Second Quarter 2013 Results

PR Newswire

NEW YORK, Aug. 8, 2013

NEW YORK, Aug. 8, 2013 /PRNewswire/ -- Scientific Games Corporation (Nasdaq:
SGMS) today announced results for the second quarter ended June 30, 2013.

Summary Financial Results

($ in millions, except per share amounts)
                            Three Months Ended  Six Months Ended

                            June 30,            June 30,
                            2013       2012     2013     2012
Revenue                     $235.0     $226.0   $454.6   $457.2
Operating income            12.5       11.4     23.6     36.3
Attributable EBITDA:
 Continuing operations    $86.5      $83.2    $165.2   $170.0
 Discontinued operations  (0.7)      0.3      (0.7)    0.2
 Attributable EBITDA
                            $85.8      $83.5    $164.5   $170.2

Net loss:
 Continuing operations    $(12.4)    $(10.9)  $(24.7)  $(7.0)
 Discontinued operations  (0.6)      (1.7)    (1.4)    (3.8)
 Net loss             $(13.0)    $(12.6)  $(26.1)  $(10.8)
Net loss per share:
 Continuing operations    $(0.14)    $(0.12)  $(0.29)  $(0.08)
 Discontinued operations  (0.01)     (0.02)   (0.02)   (0.04)
 Net loss per share   $(0.15)    $(0.14)  $(0.31)  $(0.12)
Capital expenditures        $44.2      $28.6    $80.5    $50.4
Free cash flow              2.6        32.9     (10.4)   33.0

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.

Scientific Games sold its installed base of gaming terminals in its pub
business on March 25, 2013. The related results of operations are presented as
discontinued operations in the Company's financial statements for all periods
presented. All financial results referenced in this press release are for
continuing operations only, unless otherwise noted. 

Recently Executed Contracts

New Contracts:

  oNorthstar New Jersey Lottery Group ("Northstar New Jersey"), a joint
    venture in which Scientific Games owns an approximate 18% equity interest,
    signed a long-term contract to provide marketing and sales services for
    the New Jersey Lottery until 2029. Under separate supply agreements,
    Scientific Games and GTECH will provide Northstar New Jersey with instant
    lottery games, lottery systems and equipment, and related services.
    Scientific Games is expected to have a 30% economic interest (and to be
    responsible for 30% of the capital requirements) associated with these
    supply arrangements.
  oThe Hellenic Republic Asset Development Fund signed a 12-year concession
    agreement with the consortium in which Scientific Games is a participant,
    for the exclusive rights to the production, operation, circulation,
    promotion and management of the Greek State Lotteries; Scientific Games
    has a 16.5% equity interest in the consortium and will have exclusive
    responsibility for instant ticket design and production; commencement of
    operations under the new concession is subject to Greek parliamentary and
    competition authority approvals
  oLottery systems contract with the Hungarian State Lottery to provide
    next-generation central system hardware and software, additional lottery
    terminals and related services
  oInstant ticket cooperative services ("CSP") contract with Loteria
    Electronica Internacional Dominicana S.A. ("LEIDSA"), the largest
    electronic lottery in the Dominican Republic, for a seven-year period,
    with a three-year extension option held by the lottery
  oAgreement with Societe de la Loterie de la Suisse Romande ("LoRo") to
    provide and support approximately 3,000 new lottery retail terminals and
    new central application terminal software in Switzerland
  oContracts with Norsk Tipping, the national lottery in Norway, to provide
    and support approximately 5,000 new lottery retail terminals, with
    terminal delivery and installation expected to begin in 2014, and to
    develop and support a central system for instant games
  oContract with the Rhode Island Lottery to serve as the sole supplier of
    instant tickets on a price per thousand tickets basis through June 30,
    2016, with five additional one-year extension options held by the lottery
  oInstant ticket CSP contract with the South Carolina Lottery through
    September 30, 2018, with a two-year extension option held by the lottery

Contract Extensions:

  oAgreement to serve as primary vendor for the central management system for
    sports betting for the Israeli Sports Betting Board ("ISBB") until
    February 2016
  oContract with the Ohio Lottery to continue supplying instant tickets
    through June 2015
  oContract with the Oregon Lottery to continue supplying instant tickets
    through June 2017
  oInstant ticket contract through December 2014 with Tatts Lotteries, the
    largest operator of lotteries in Australia; the contract includes two
    one-year extension options held by the customer
  oContract with the West Virginia Lottery to continue to serve as the video
    lottery central system vendor for all video lottery machines within the
    state through January 2018

"Our business has performed well since our last update," Chairman and Chief
Executive Officer A. Lorne Weil commented. "In addition to benefitting from
strong U.S. lottery retail sales, we won a number of new contracts and
extensions and have made significant progress on our pending acquisition of
WMS. The New Jersey Lottery's award of a marketing and sales services contract
to our joint venture reflects our success in demonstrating to lotteries how
our industry-leading instant game management and other lottery outsourcing
programs may help improve lottery performance. We are also pleased with the
progress we continue to make in our planning for the successful integration of
WMS, while both companies remain focused on serving our respective customers
and securing future business."

Jeffrey S. Lipkin, Senior Vice President and Chief Financial Officer, added,
"Our solid second quarter results reflected the benefits of our diverse,
participation-based business model and the strength of our core businesses. We
are focused on executing on our numerous recent contract wins, several of
which we expect will be reflected in our results beginning later this year,
and continuing to prepare for the closing of the WMS acquisition. We are
pleased that we achieved several key milestones to the closing, including WMS
stockholder approval and the successful syndication of our term loan to
finance the transaction. We are also continuing to make good progress in the
gaming regulatory approval process, with approvals received in a number of
jurisdictions, and we remain on track for a fall closing. Importantly, we
believe we have the right framework in place to successfully integrate WMS
with Scientific Games to create a world-class global lottery and gaming
company and deliver on the expected synergies."

Business Update

The Company's second quarter results reflected the strong performance of its
core lottery businesses. The instant ticket and draw game retail sales of the
Company's U.S. customers increased 4.9% and 10.8%, respectively, during the
quarter. Instant ticket sales continued to be propelled by strong performance
in larger states, while draw sales benefited from a record Powerball^® jackpot
of $591 million in the quarter.

In Italy, instant ticket retail sales decreased 2.4% in the second quarter
compared to the prior-year period, a comparable percentage decrease relative
to the year-over-year percentage decrease in the first quarter of 2013. While
instant ticket sales appear to have been impacted in part by continued
challenging economic conditions in Italy, we believe we are seeing some signs
of stabilization. In China, instant ticket retail sales declined 7.6% in the
second quarter of 2013 compared to the prior-year period, which we believe is
primarily due to competition from other lottery products that is impacting
instant ticket sales.

The Company's U.K. gaming business faced challenging year-over-year
comparisons against strong gross win levels in the prior-year period.
Additionally, economic conditions in the U.K. affected player activity and
gross win across all betting shops. While we had been able to grow this
business in 2012 despite the economic backdrop, our gross win per terminal
decreased modestly in the first two quarters of 2013, with gross win per
terminal down 2.2% year-over-year in the second quarter. However, as
anticipated, the Company is seeing a positive response from players as it
continues to roll out new Infinity2 gaming terminals with enhanced
functionality to Gala Coral. Revenue and profitability of the gaming business
outside the U.K. were negatively affected by specific issues impacting two
customers that the Company has been working to resolve.

Significant progress was made during the second quarter toward completing the
Company's pending acquisition of WMS, as WMS' stockholders approved the
acquisition and the Company successfully syndicated the term loan acquisition
financing. The Company also continues to make meaningful progress in securing
the required gaming regulatory approvals. Key executives of both companies are
leading the detailed integration planning efforts, which are focused on
positioning the Company to realize the acquisition's expected scale benefits
and synergy opportunities that have been previously outlined. The completion
of the WMS acquisition remains subject to the approval of gaming regulatory
authorities and other customary closing conditions.

In connection with the pending WMS acquisition, the Company incurred
regulatory costs, professional fees and other expenses totaling approximately
$2.4 million in the second quarter of 2013, with additional
transaction-related fees and expenses anticipated to be incurred throughout
the balance of 2013.

Second Quarter 2013 Operating Results by Segment
($ in millions)
                       Revenue             Operating Income (Loss)
                       Three Months Ended  Three Months Ended

                       June 30,            June 30,
                       2013       2012     2013           2012
Printed Products       $130.1     $122.7   35.3           23.1
Lottery Systems        68.9       64.6     8.3            10.5
Gaming                 36.0       38.7     (8.4)          (0.8)

Printed Products

Revenue

  oRevenue growth was primarily driven by a $5.3 million increase in revenue
    from customers that purchase tickets on a price per thousand tickets basis
    and a $1.8 million increase in revenue from customers who purchase tickets
    on a percentage of sales basis along with the acquisition of Provoloto in
    2012

Operating Income

  oIncrease in operating income primarily reflected:

       othe absence of $4.5 million of employee termination and restructuring
         costs recorded in the prior-year period
       oa $4.0 million decrease in depreciation and amortization as the
         prior-year period was negatively impacted by a $3.1 million
         write-down of certain development costs and $1.5 million of
         accelerated depreciation related to closing the Australia printing
         facility
       oa $3.8 million benefit from a higher and more profitable revenue mix

Lottery Systems

Revenue

  oSales revenue increased $3.1 million, largely due to higher sales to
    international customers
  oService revenue increased $1.1 million, primarily driven by higher U.S.
    retail sales from a record Powerball jackpot

Operating Income

  oDecrease in operating income primarily reflected a $1.8 million increase
    in depreciation and amortization related to new hardware deployed in the
    U.S. and China, along with a less profitable service revenue mix

Gaming

Revenue

  oThe service revenue decrease was primarily due to:

       o$1.5 million of lower revenue from customers outside the U.K.
       o$1.2 million of negative foreign exchange impact
       o$0.8 million from the loss of the William Hill contract in 2012

  oThe decline in service revenue was partially offset by increased revenue
    from U.K. LBO customers (excluding William Hill), growth of the
    interactive business and the acquisition of ADS in 2012
  oThe decline in sales revenue primarily reflected lower sales of gaming
    terminals

Operating Income

  oDecrease in operating income was principally due to:

       oan $8.4 million increase in depreciation and amortization, which
         reflects a write-down of used gaming terminals and accelerated
         depreciation related to a change in the estimated useful lives of
         terminals
       oa $2.9 million impact of a lower and less profitable revenue mix

  oThe decline in operating income was partially offset by:

       oa $2.3 million reduction in selling, general and administrative
         expenses primarily related to lower accounts receivable reserves
       othe absence of $1.2 million of employee termination and restructuring
         costs recorded in the prior-year period

Interest Expense and Other Income (Expense)

  oInterest expense increased by $1.0 million due to the issuance of senior
    subordinated notes in the third quarter of 2012
  oOther income increased by $1.4 million driven by a decrease in foreign
    exchange transaction expense

Earnings and EBITDA from Equity Investments

  oEarnings from equity investments decreased by $3.4 million, primarily due
    to lower results from the Company's International Terminal Leasing ("ITL")
    and Northstar Illinois joint ventures

       oDecrease in ITL results due to change in estimated useful lives of
         gaming terminals
       oDecrease in Northstar Illinois results due to recording an estimated
         net shortfall payment obligation in the second quarter that is being
         amortized over the ten-year contract life

  oEBITDA from equity investments declined by $1.1 million, primarily
    reflecting lower results from the Company's LNS joint venture in Italy
    ("LNS")

Liquidity and Capital Resources

  oAt June 30, 2013, cash and cash equivalents of $78.1 million and
    availability under revolving credit facility of $213.8 million
  oTotal debt of $1,459.4 million as of June 30, 2013 compared to $1,468.2
    million at December 31, 2012
  oFree cash flow for the second quarter was $2.6 million, compared to $32.9
    million in the prior-year quarter, principally reflecting a $15.6 million
    increase in total capital expenditures primarily related to the purchase
    of gaming terminals in the U.K. and printing press upgrades
  oReceived return of capital payments in the second quarter of 2013 from
    equity investments in Italy of $16.0 million. In the second quarter of
    2012, received return of capital payments from LNS of $15.1 million and
    ITL of $0.9 million. These amounts are not included in the free cash flow
    metric
  oReceived $26.0 million in cash dividends from equity investments
    representing distribution of earnings in the second quarter:

       oItaly - $17.9 million
       oChina - $3.8 million
       oITL - $2.4 million
       oRoberts Communications Network - $1.9 million

  oMade $21.4 million equity investment in Northstar New Jersey in the second
    quarter

Pending Acquisition of WMS Industries Inc. ("WMS")

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.

WMS' stockholders approved the proposed merger at a special stockholders'
meeting on May 10, 2013, which satisfied a key condition to closing. On May
22, 2013, Scientific Games successfully completed the syndication of a
contemplated $2.3 billion term loan facility that, together with a previously
syndicated $300 million revolving credit facility, is expected to comprise the
financing necessary to complete the merger. Scientific Games has also
received notice from the Federal Trade Commission of early termination of the
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976
in connection with the merger, which satisfied the related closing condition.
Completion of the transaction remains subject to approvals by gaming
regulatory authorities and customary closing conditions. Scientific Games and
WMS have filed applications (or otherwise provided the required documentation
or information) in each of the approximately 50 jurisdictions where gaming
regulatory approval is a condition to closing or have received confirmation
that receipt of such approval is not required prior to closing, with approvals
received in a number of jurisdictions. The Company expects the transaction to
close in the fall 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 8:00 am 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 (800) 295-4740 (U.S. and Canada) or (617) 614-3925
(international). The conference ID is 78727593.

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 Illinois joint venture to meet the net
income targets or otherwise to realize the anticipated benefits under its
private management agreement with the Illinois Lottery; failure of our
Northstar New Jersey joint venture to meet the net income targets or other
requirements under its agreement to provide marketing and sales services to
the New Jersey Lottery or otherwise to realize the anticipated benefits under
such agreement (including as a result of a protest); the seasonality of our
business; failure to receive the required approvals related to the award to
our consortium of an instant ticket concession in Greece on a timely basis or
at all, or otherwise to realize the anticipated benefits in connection with
such concession; failure to complete the pending acquisition of WMS Industries
Inc. ("WMS") on a timely basis or at all, including due to the inability to
obtain the gaming regulatory approvals required to complete the acquisition;
disruption of our current plans and operations in connection with the WMS
acquisition; failure to achieve the intended benefits of the WMS acquisition,
including due to the inability to realize synergies in the anticipated amounts
or within the contemplated time-frames or cost expectations, or at all;
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 ("SEC"), including under
the heading "Risk Factors" in the Company's Annual Report on Form 10-K filed
with the SEC on March 12, 2013 and in its subsequent 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). For purposes of
calculating our financial ratios under the credit agreement, consolidated
EBITDA is calculated over a trailing period of four consecutive fiscal
quarters and more recent adjustments may replace older adjustments within such
four-quarter period, subject to any caps specified in the credit agreement
with respect to particular categories of adjustments (as discussed below).
Accordingly, the aggregate amount of any such adjustments within a particular
category reported in our quarterly earnings releases over a four-quarter
period may exceed such cap over such period (but will not exceed such cap in
any particular quarter). 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 June   Six Months Ended June 30,
                           30,
                           2013         2012         2013          2012
Revenue:
 Instant tickets          $       $       $        $     
                           126,538      119,627      249,351       242,951
 Services                85,176       85,335       166,943       172,240
 Sales                   23,330       21,045       38,338        42,010
 Total revenue            235,044      226,007      454,632       457,201
Operating expenses:
 Cost of instant          71,510       68,420       139,704       138,383
tickets^(1)
 Cost of services ^(1)    46,204       42,926       92,437        86,229
 Cost of sales^(1)        15,660       14,238       25,951        31,165
 Selling, general and     46,154       46,464       96,795        91,762
administrative
 Employee termination     -            5,747        331           8,051
and restructuring
 Depreciation and         43,064       36,818       75,833        65,286
amortization
Operating income           12,452       11,394       23,581        36,325
Other (expense) income:
 Interest expense        (25,138)     (24,185)     (50,146)      (49,083)
 Earnings from equity     3,495        6,915        9,631         15,760
investments
 Other income (expense),  193          (1,208)      (805)         (686)
net
Total other expense        (21,450)     (18,478)     (41,320)      (34,009)
Net (loss) income before   (8,998)      (7,084)      (17,739)      2,316
income tax expense
 Income tax expense       3,385        3,828        6,931         9,360
Net loss from continuing   $       $       $        $     
operations                 (12,383)     (10,912)     (24,670)       (7,044)
Discontinued operations:
 Loss from discontinued   $       $       $        $     
operations                   (771)     (2,321)     (2,682)      (4,991)
 Other (expense) income   (1)          100          (46)          56
 Gain on sale of assets   -            -            828           -
 Income tax benefit       180          544          442           1,209
Net loss from              $       $       $        $     
discontinued operations      (592)     (1,677)     (1,458)      (3,726)
Net loss                   $       $       $        $     
                           (12,975)     (12,589)     (26,128)      (10,770)
Basic earnings per share:
 Continuing operations    $       $       $        $     
                            (0.14)     (0.12)     (0.29)      (0.08)
 Discontinued operations  (0.01)       (0.02)       (0.02)        (0.04)
 Basic net loss           $       $       $        $     
                            (0.15)     (0.14)     (0.31)      (0.12)
Diluted earnings per
share:
 Continuing operations    $       $       $        $     
                            (0.14)     (0.12)     (0.29)      (0.08)
 Discontinued operations  (0.01)       (0.02)       (0.02)        (0.04)
 Diluted net loss         $       $       $        $     
                            (0.15)     (0.14)     (0.31)      (0.12)
Weighted average number
of shares:
 Basic shares            85,016       92,767       84,813        92,625
 Diluted shares          85,016       92,767       84,813        92,625
(1) Exclusive of depreciation and amortization.



SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET DATA
(Unaudited, in thousands)
                                                June 30,        December 31,
                                                2013            2012
Assets:
 Cash and cash equivalents                     $    78,084  $   109,015
 Other current assets                          349,289         375,603
 Property and equipment, net                   374,108         376,877
 Equity investments                            298,917         316,234
 Other long-term assets                        1,002,905       1,009,179
   Total assets                             $  2,103,303   $  2,186,908
Liabilities and Stockholders' Equity:
 Current portion of long-term debt             $    10,269  $    16,458
 Other current liabilities                     202,955         239,889
 Long-term debt, excluding current portion     1,449,122       1,451,708
 Other long-term liabilities                   131,320         114,062
 Stockholders' equity                          309,637         364,791
  Total liabilities and stockholders'      $  2,103,303   $  2,186,908
equity



SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED SEGMENT OPERATING DATA
(Unaudited, in thousands)
                         Three Months Ended June 30, 2013
                                                         Unallocated
                         Printed   Lottery              Corporate
                         Products  Systems    Gaming     Expense      Totals
Instant tickets          $       $      $      $       $  
                         126,538    -       -        -     126,538
Services                 -         52,228     32,948     -            85,176
Sales                    3,584     16,642     3,104      -            23,330
 Total revenue        130,122   68,870     36,052     -            235,044
Cost of instant          71,510    -          -          -            71,510
tickets^(1)
Cost of services ^(1)    -         28,747     17,457     -            46,204
Cost of sales^(1)        2,521     10,831     2,308      -            15,660
Selling, general and     11,101    6,185      4,461      18,743       40,490
administrative
Stock-based              822       655        234        3,953        5,664
compensation
Employee termination     -         -          -          -            -
and restructuring
Depreciation and         8,840     14,111     19,950     163          43,064
amortization
Operating income (loss)  $      $      $       $        $   
from continuing          35,328    8,341      (8,358)   (22,859)    12,452
operations
                         Three Months Ended June 30, 2012
                                                         Unallocated
                         Printed   Lottery              Corporate
                         Products  Systems    Gaming     Expense      Totals
Instant tickets          $       $      $      $       $  
                         119,627    -       -        -     119,627
Services                 -         51,114     34,221     -            85,335
Sales                    3,082     13,506     4,457      -            21,045
 Total revenue        122,709   64,620     38,678     -            226,007
Cost of instant tickets  68,420    -          -          -            68,420
^(1)
Cost of services^(1)     -         26,963     15,963     -            42,926
Cost of sales^(1)        1,991     8,729      3,518      -            14,238
Selling, general and     10,985    5,623      6,718      17,292       40,618
administrative
Stock-based              859       575        453        3,959        5,846
compensation
Employee termination     4,507     -          1,240      -            5,747
and restructuring
Depreciation and         12,813    12,278     11,577     150          36,818
amortization
Operating income (loss)  $      $       $      $        $   
from continuing          23,134    10,452     (791)     (21,401)    11,394
operations
(1) Exclusive of depreciation and
amortization.



SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED SEGMENT OPERATING DATA
(Unaudited, in thousands)
                         Six Months Ended June 30, 2013
                                                         Unallocated
                         Printed   Lottery              Corporate
                         Products  Systems    Gaming     Expense      Totals
Instant tickets          $       $      $      $       $  
                         249,351    -       -       -       249,351
Services                 -         102,260    64,683     -            166,943
Sales                    7,058     24,803     6,477      -            38,338
 Total revenue        256,409   127,063    71,160     -            454,632
Cost of instant          139,704   -          -          -            139,704
tickets^(1)
Cost of services ^(1)    -         58,005     34,432     -            92,437
Cost of sales^(1)        4,964     16,560     4,427      -            25,951
Selling, general and     22,769    13,125     11,598     37,799       85,291
administrative
Stock-based              1,628     1,253      683        7,940        11,504
compensation
Employee termination     331       -          -          -            331
and restructuring
Depreciation and         17,812    27,869     29,829     323          75,833
amortization
Operating income (loss)  $      $       $       $        $   
                         69,201    10,251     (9,809)   (46,062)     23,581
                         Six Months Ended June 30, 2012
                                                         Unallocated
                         Printed   Lottery              Corporate
                         Products  Systems    Gaming     Expense      Totals
Instant tickets          $       $      $      $       $  
                         242,951    -       -       -       242,951
Services                 -         104,120    68,120     -            172,240
Sales                    5,245     24,977     11,788     -            42,010
 Total revenue        248,196   129,097    79,908     -            457,201
Cost of instant          138,383   -          -          -            138,383
tickets^(1)
Cost of services ^(1)    -         56,322     29,907     -            86,229
Cost of sales^(1)        3,401     16,684     11,080     -            31,165
Selling, general and     21,178    12,133     11,595     35,267       80,173
administrative
Stock-based              1,681     1,118      810        7,980        11,589
compensation
Employee termination     4,507     -          3,544      -            8,051
and restructuring
Depreciation and         20,816    24,076     20,095     299          65,286
amortization
Operating income (loss)  $      $       $      $        $   
                         58,230    18,764     2,877      (43,546)     36,325
(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 June 30,  Six Months Ended June
                                                       30,
                          2013            2012         2013        2012
Net income (loss) from    $            $         $        $    
continuing operations     (12,383)        (10,912)     (24,670)    (7,044)
Add: Income tax           3,385           3,828        6,931       9,360
expense
Add: Depreciation and     43,064          36,818       75,833      65,286
amortization
Add: Interest expense     25,138          24,185       50,146      49,083
Add: Early                -               -            -           -
extinguishment of debt
Add/Less: Other           (193)           1,208        805         686
(income) expense
EBITDA from continuing    $           $        $        $   
operations                59,011          55,127       109,045     117,371
Credit Agreement
adjustments:
Add: Debt-Related Fees    $         $       $       $    
and Charges ^(1)            8             55           8      55
Add: Amortization of      -               -            -           -
Intangibles
Add: Earn-outs for        -               -            -           -
Permitted Acquisitions
Add: Extraordinary
Charges or Losses         -               -            -           -
under GAAP
Add: Non-Cash
Stock-Based               5,664           5,846        11,504      11,589
Compensation Expenses
Add: Deferred
Contingent                -               -            -           -
Compensation Expense
Add: Non-Recurring        15              -            15          -
Write-Offs under GAAP
Add: Acquisition          -               671          42          671
Advisory Fees
Add: Specified
Permitted Add-Backs       3,063           6,459        9,136       8,915
^(2)
Add: Italian                              -            -           -
Concession Obligations
Add: Racing
Disposition Charges       -               -            -           -
and Expenses
Add: Playtech             1,955           1,928        4,151       3,530
Royalties and Fees
Less: Interest Income     (52)            (31)         (145)       (60)
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           193             (1,208)      (805)       (686)
(income) expense ^(3)
Less: Early               -               -            -           -
extinguishment of debt
Less: Earnings from       (3,495)         (6,915)      (9,631)     (15,760)
equity investments
Add: EBITDA from          20,167          21,228       41,844      44,333
equity investments
Attributable EBITDA
from continuing           86,529          83,160       165,164     169,958
operations
Attributable EBITDA
from discontinued         (772)           351          (713)       286
operations
Attributable EBITDA       $            $         $         $  
                          85,757          83,511       164,451     170,244
EBITDA from equity
investments ^(4):
Earnings from equity      $          $       $       $    
investments               3,495           6,915         9,631     15,760
Add: Income tax           2,597           2,994        5,740       6,773
expense
Add: Depreciation and     14,560          10,107       25,723      19,692
amortization
Add: Interest expense,    (485)           1,212        750         2,108
net of other
EBITDA from equity        $           $        $       $    
investments               20,167          21,228       41,844      44,333
EBITDA from
discontinued
operations
Net income (loss) from    $          $        $       $    
discontinued              (592)          (1,677)      (1,458)     (3,726)
operations
Add: Income tax           (180)           (544)        (442)       (1,209)
(benefit) expense
Add: Depreciation and     -               2,268        597         4,318
amortization
Add: Credit agreement     -               304          590         903
adjustments
EBITDA from               $          $       $       $    
discontinued              (772)           351         (713)      286
operations
(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 include 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, 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 June 30,  Six Months Ended June 30,
                        2013             2012        2013           2012
Net cash provided by    $           $       $         $    
operating activities    46,803          61,431     70,039        83,356
Less: Capital           (7,661)          (2,353)     (15,007)       (4,311)
expenditures
Less: Lottery and
gaming systems          (26,209)         (11,963)    (43,065)       (19,356)
expenditures
Less: Other intangible
assets and software     (10,327)         (14,255)    (22,405)       (26,701)
expenditures
 Total Capital       $            $        $          $   
Expenditures            (44,197)        (28,571)   (80,477)      (50,368)
Free cash flow          $          $       $          $    
                        2,606            32,860     (10,438)      32,988
For the second quarter ended June 30, 2013, the Company received return of
capital payments from its equity
investments in LNS of $13.9 million and CLN of $2.2 million. For the second
quarter ended June 30, 2012, the
Company received return of capital payments from its equity investment in LNS
of $15.1 million and ITL of $0.9 million.
For the first quarter ended March 31, 2013, the Company received no return of
capital payments from its
equity investments. 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.
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 June  Six Months Ended June 30,
                            30,
                            2013          2012       2013            2012
Italy - Gratta e Vinci
^(1):
Retail Sales (Euros)        2,374         2,433      4,920           5,053
China - China Sports
Lottery ^(1):
Retail Sales (RMB)          4,734         5,124      8,634           9,583
Tickets Sold                623           686        1,124           1,291
ASP (RMB)                   7.60          7.47       7.68            7.42
                            As of June 30,
Terminal installed base     2013          2012
at end of period:
Global Draw                26,563        24,455
Games Media                -             2,891
Barcrest                    3,099         4,369
(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.