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

     Summary Financial Results     ($ in millions, except per share amounts)                                                Three Months Ended        Six Months Ended                                                    June 30,                 June 30,                                                    --------                 --------                                                  2012              2011           2012     2011                                                  ----              ----           ----     ----     Revenue                                    $229.3            $220.2         $463.9   $416.9     Operating      income                                       9.1              28.9           31.3     43.2      Attributable      EBITDA                                      83.5              90.5          170.2    165.5      Net (loss)      /income                                    (12.6)              7.0          (10.8)     0.1     Net (loss)      /income      per share                                 ($0.14)            $0.08         ($0.12)   $0.00      Total      capital      expenditures                               $28.6             $22.4          $50.4    $44.2     Free cash      flow                                       $32.9             $26.6          $33.0    $53.4 

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

Recent Business Highlights

     --  Scientific Games' U.S. instant ticket and lottery systems customers'         retail sales increased 10.0% and 3.8%, respectively, in the second         quarter of 2012 compared to the prior-year period, based on third-party         data     --  Global Draw's U.K. total gross win and gross win per terminal per day         increased 8.3% and 6.3%, respectively, in the second quarter of 2012         versus the prior-year period     --  Illinois Lottery instant ticket retail sales increased approximately 27%         for the lottery's fiscal year ended June 30, 2012, which coincides with         the first full year of the lottery's operation under our Northstar         private management agreement ("PMA")     --  Signed a four-year contract extension with Puerto Rico's Loteria         Electronica to continue to provide instant tickets and lottery systems         and services through June 2016     --  Signed a three-year contract with the New Hampshire Lottery to remain         the primary instant ticket supplier through June 2015     --  Agreed to assist in the potential procurement of a PMA for the         Pennsylvania Lottery, providing a potential extension of the Company's         existing contracts as the exclusive provider of instant tickets and         lottery systems and services through August 2017 and December 2018,         respectively     --  Completed three strategic acquisitions in support of Company's growth         initiatives 

"We experienced strong retail sales in the U.S. and U.K. during the second quarter, with soft sales levels in Italy and China," Chairman and Chief Executive Officer A. Lorne Weil commented. "While the quarter's results reflected the impact of both this mixed performance and our continued efforts to streamline operations, our focus remains on executing on our strategic initiatives for the longer-term benefit of our business. We have made continued progress in a number of key areas and completed three strategic acquisitions supporting our interactive and international expansion efforts. We also see the pipeline of growth opportunities developing at an accelerating rate as more lotteries are evaluating privatization and transactions over the internet."

Jeffrey S. Lipkin, Senior Vice President and Chief Financial Officer, added, "As we pursue a number of growth opportunities both domestically and internationally, we continue to remain highly focused on strengthening our balance sheet. We generated nearly $33 million in free cash flow during the quarter and our June 30, 2012 balance sheet reflects reduced leverage from year-end levels. Furthermore, we believe that the activity under our share repurchase program demonstrates our Board of Directors' and management's confidence in our long-term growth prospects."

Business Update

Our second quarter results reflected varying levels of strength across our diverse global businesses. U.S. retail sales continued on a positive trend -- our customers' retail sales of instant tickets rose 10.0% in the quarter and their sales of draw games grew 3.8%. Instant ticket sales continue to be driven by strong performance in larger states, and draw sales have benefited from higher average jackpots.

Additionally, our Properties Plus® offering, which provides internet loyalty and other services to lotteries, is beginning to gain significant traction and appears to be on its way to becoming a meaningful contributor to our results as it has a growing pipeline of opportunities. Properties Plus provides a vehicle for lotteries to move internet audiences from lottery loyalty and rewards programs to playing games online through subscriptions and other product offerings.

Our Gaming business also performed well during the second quarter. Revenue grew 36% driven by the acquisition of Barcrest, and Global Draw's U.K. total gross win and gross win per terminal per day increased approximately 8.3% and 6.3%, respectively. The ability to increase cash box by over 6% demonstrates our ability to help our Gaming customers drive growth.

Sales in Italy and China remained soft in the second quarter, with the sales trends continuing into the third quarter. In Italy, retail sales of instant tickets declined by approximately 8% in the second quarter, which we believe was due in part to a decline in consumer spending related to difficult economic conditions and tax increases. We also faced challenging year-over-year comparisons as we did in the first quarter related to the unprecedented sales performance in Italy in calendar 2011. The strategy remains to increase the productivity of retailers, maximize the portfolio of products offered and enhance marketing support.

In China, instant ticket retail sales declined 7.5% in the second quarter. We believe this performance continued to reflect the product mix introduced in the first half of the year, which varied from our original plans due to delays in product approvals, along with slower than anticipated expansion of the retailer network. We have a robust release schedule planned and approved for the back half of the year including higher price point tickets, licensed property tickets, and tickets targeted to frequent players. We also have additional bar code readers scheduled for deployment. Our value chain management program with the Hubei Sports Lottery, through which we will provide sales and distribution management services designed to assist the lottery in achieving higher retail sales and lower operating costs, is planned for launch in the third quarter. Other initiatives include a more proactive and customized approach to the sale of instant tickets in each province in China. We will seek to tailor product development, planning and marketing to individual provinces to maximize sales in each region. Lottery sales overall remain robust in China and we are optimistic that as we shift from a national-focused model to a provincial-driven model, combined with our other initiatives, instant ticket sales performance should improve.

Our success with the private management of the Illinois Lottery, where revenue grew by nearly 18% and instant ticket retail sales increased by approximately 27% in Northstar's first year of operations, has demonstrated the value to lotteries of focusing on revenue growth. We see heightened interest from lotteries for private management agreements and other outsourcing models, as they seek to increase state revenue and reduce budget deficits by outsourcing more responsibility for the lottery value chain to experienced operators such as Scientific Games. We recently agreed to assist in the potential procurement of a PMA for the Pennsylvania Lottery. A number of other states are also actively pursuing some form of privatization. Internationally, several countries have announced plans for lottery privatization, and we expect to see further development activity in these jurisdictions later in the year.

We also see rising levels of interest from our lottery customers in offering products on the internet. Accordingly, we remain focused on developing and delivering new and innovative content that may eventually be sold online.

We recently completed three strategic acquisitions supporting our interactive and international expansion efforts. Shortly after the quarter closed, we acquired the assets of Parspro.com ehf ("Parspro"), a leading supplier of sports betting solutions in Europe. We have seen significantly heightened interest from lotteries in Germany and other parts of Europe, Asia and Latin America to expand into sports betting as the next wave of lottery development to generate an additional source of revenue. We plan to bring Parspro's offerings to select lottery customers, as we have done successfully with Parspro for the Norsk Tipping national lottery in Norway, where we integrated Parspro's sports betting system with our venue-based lottery infrastructure to support nearly 4,000 retail points of sale.

During the quarter we acquired SG Provoloto, S. de R.L. de C.V. ("Provoloto"), a company that distributes and develops instant lottery tickets and manages instant lotteries for nearly 30 charities in Mexico and has been a Scientific Games instant ticket customer for many years. While Provoloto has grown to become a leading provider of instant ticket services in Mexico, it shares our view that the instant ticket sector has substantial opportunity for growth. We now have the ability to build on Provoloto's relationships and distribution system with the addition of our content, licensing and marketing capabilities to make the instant ticket offering more appealing to consumers, retailers and distributors. We believe this is an important opportunity to demonstrate how the best practices we use around the world may be successfully deployed to grow our Latin America business. Additionally, other countries in Latin America and elsewhere have provisions in their gaming regulations for the operation of charity lotteries. The experience we gain with Provoloto may be used to expand the charity lottery operator model beyond Mexico.

Finally, during the quarter we acquired ADS/Technology and Gaming ("ADS"), a leading third-party field-based service and installation specialist in the U.K. that has worked with many of the betting shops, pubs, arcades and bingo clubs there. The addition of ADS expands our Gaming segment's field service offerings and leverages its cost structure, and we expect customers to also benefit from the additional product offerings.

We expect these acquisitions will provide modest near-term financial benefit and we view them all as playing an important role in our long-term strategy to invest in the products, technology and people that we believe will enhance our ability to generate incremental revenue from our existing assets, and further leverage our participation-based business model.

Second Quarter 2012 Financial Results

Revenue

     --  Revenue increase of 4.1% reflects growth in Lottery Systems and Gaming         segments, partially offset by a decline in Printed Products 

Operating Income

     --  Decrease in operating income primarily reflects:         --  $10.1 million increase in depreciation and amortization         --  $3.7 million increase in selling, general and administrative         --  $6.0 million of employee termination and restructuring     --  Increase in depreciation and amortization principally reflects:         --  Accelerated depreciation of $7.3 million related to write-down of             certain development costs, obsolete gaming terminals and closing of             Australia printing facility         --  $2.4 million of additional depreciation from acquisition of Barcrest     --  Increase in selling, general and administrative primarily due to:         --  $2.4 million increase in accounts receivable reserves         --  $1.3 million of incremental overhead from acquisition of Barcrest         --  $1.4 million in increased acquisition-related due diligence fees         --  $0.8 million in higher stock-based compensation         --  Increases partially offset by a customer claim recorded in the             second quarter of 2011     --  Employee termination and restructuring resulted from previously         announced reorganizations in the Printed Products and Gaming groups,         aggregating $4.5 million and $1.5 million, respectively. 

Net Income

     --  In addition to the impact of the items mentioned above, the decline in         net income reflected:         --  $2.3 million of lower earnings from equity investments         --  $2.0 million decrease in other income principally due to an increase             in foreign exchange transaction expense         --  Decline partially offset by $2.2 million decrease in interest             expense in large part due to decline in borrowing costs related to             variable interest rate debt and expiration of interest rate swap in             October 2011, and a $2.3 million decrease in income tax expense 

     Second Quarter 2012 Operating Results by Segment     ------------------------------------------------     ($ in millions)                                                 Revenue               Operating Income                                                -------               ----------------                                          Three Months Ended        Three Months Ended                                               June 30,                   June 30,                                               --------                   --------                                             2012              2011            2012     2011                                             ----              ----            ----     ----      Printed      Products                             $122.7            $132.5           $23.1    $37.8      Lottery      Systems                               $64.6             $56.8           $10.5     $9.1     Gaming                                 $42.0             $30.9           $(3.1)    $3.2 

Printed Products

Revenue

     --  Revenue decrease of 7.4% resulted primarily from $12.2 million decline         in U.S. and international revenue from customers who purchase tickets on         a price per thousand unit basis due to lower sales to Italy, the timing         of orders, certain contract revisions and increased competition where we         are not the exclusive instant ticket supplier     --  Revenue from licensed properties business decreased by $8.7 million,         largely due to challenging year-over-year comparisons resulting from         launch of the Wheel of Fortune(®) multi-state game in first half of         2011     --  $1.0 million unfavorable foreign exchange impact     --  Revenue decreases partially offset by:         --  $8.8 million increase in revenue from U.S. and international             customers who compensate us based on a percentage of retail sales         --  Higher U.S. retail sales levels led by California, Illinois and             Florida         --  $2.3 million increase in revenue from Properties Plus offerings 

Operating Income

     --  Operating income decrease reflected:         --  $6.8 million impact from lower volumes and less profitable mix of             revenue         --  $4.6 million increase in depreciation and amortization         --  $4.5 million of employee termination and restructuring related to             previously announced closing of Australia printing facility     --  Increase in depreciation and amortization principally reflected:         --  $3.1 million write-down of certain development costs         --  $1.5 million of accelerated depreciation related to closing the             Australia printing facility     --  Decrease in operating income partially offset by $1.3 million decrease         in selling, general and administrative principally due to a customer         claim recorded in second quarter of 2011 

Lottery Systems

Revenue

     --  Revenue increase of 13.7% reflected higher sales revenue from increased         demand for equipment and systems from both U.S. and international         customers     --  Service revenue essentially flat compared to the prior-year period as         strength in U.S. business driven by higher instant ticket validation         revenue was offset by lower revenue in China and other international         territories     --  $1.1 million unfavorable foreign exchange impact 

Operating Income

     --  Increase in operating income primarily reflects $2.4 million benefit         from higher revenue 

Gaming

Revenue

     --  Revenue increase of 35.8% primarily driven by acquisition of Barcrest,         which contributed $5.4 million and $4.5 million of service revenue and         sales revenue, respectively     --  Results also benefitted from $3.0 million increase in service revenue         from licensed betting shop and pub customers in the U.K. due to growth         in installed terminal base and gross win per terminal per day, partially         offset by impact of loss of William Hill contract     --  $0.8 million of increased service revenue from international         jurisdictions     --  Global Draw experienced 6.3% growth in gross win per terminal per day         compared to the prior-year period     --  Revenue growth partially offset by:         --  $1.9 million negative impact from exiting Austrian over-the-counter             business         --  $0.9 million unfavorable foreign exchange impact 

Operating Income

     --  Decrease in operating income primarily due to:         --  $5.1 million increase in depreciation and amortization         --  $4.2 million increase in selling, general and administrative         --  $1.5 million of employee termination and restructuring related to             previously announced reorganization of Gaming business     --  Increase in depreciation and amortization principally reflects:         --  $2.7 million of accelerated depreciation for obsolete gaming             terminals         --  $2.4 million of additional depreciation from acquisition of Barcrest     --  Increase in selling, general and administrative primarily due to:         --  $2.4 million increase in accounts receivable reserves         --  $1.3 million of incremental overhead from acquisition of Barcrest     --  Decrease in operating income partially offset by $4.5 million impact         from higher revenue 

Liquidity and Capital Resources

     --  At June 30, 2012, cash and cash equivalents of $112.4 million and         availability under revolving credit facility of $212.3 million     --  Total indebtedness of $1,369.7 million as of June 30, 2012, down from         $1,390.7 million at December 31, 2011     --  Free cash flow for second quarter was $32.9 million, compared to $26.6         million in prior-year quarter     --  Received return of capital payments in second quarter of 2012 from         equity investment in LNS of $15.1 million and ITL of $0.9 million. In         second quarter of 2011, received return of capital payment from LNS of         $6.3 million. These amounts are not included in free cash flow metric     --  Received $26.2 million in cash dividends from equity investments in         second quarter:         --  LNS - $17.5 million         --  CSG - $6.6 million         --  RCN - $2.1 million     --  During the quarter and through the settlement date of August 3, 2012,         Company repurchased 1,335,900 of its common shares in the open market at         an aggregate cost of $11.1 million, or an average price of $8.34 per         share 

Conference Call Details

Scientific Games will host a conference call today at 5:30 pm Eastern Daylight 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) 783-2139 (U.S. and Canada) or (857) 350-1598 (international) 15 minutes prior to the start of the call. The conference ID is 45168714.

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

About Scientific Games

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

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

Forward-Looking Statements

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

Non-GAAP Financial Measures

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

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

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