Scientific Games Results Up

29 July 2004

NEW YORK – (PRESS RELEASE) -- Scientific Games Corporation (Nasdaq: SGMS) today reported that second quarter 2004 revenues increased 38% to $178.1 million from the $128.8 million reported in the second quarter ended June 30, 2003. Net income before preferred stock dividend increased 55% to $19.5 million or $0.21 per diluted share in the second quarter of 2004 compared to $12.6 million or $0.14 per diluted share in the second quarter of 2003. EBITDA (earnings before interest, taxes, depreciation and amortization -- see the following EBITDA reconciliation) increased 38% to $51.3 million in the second quarter of 2004 from $37.1 million in the second quarter of 2003.

For the first half of 2004, revenues were $363.6 million compared to $252.1 million for the first six months of 2003. Net income before preferred stock dividend was $39.9 million or $0.44 per diluted share for first half of 2004 compared to net income before preferred stock dividend of $23.9 million or $0.27 per diluted share in the first six months of 2003. EBITDA increased 45% to $104.3 million in the first six months of 2004 from $71.9 million in the first six months of 2003.

The company noted that the lottery systems business was a significant contributor to the second quarter results, which included the addition of the IGT OnLine Entertainment Systems business as well as the sale of equipment to Pennsylvania and a system to Italy, in addition to normal recurring contract revenue. In addition, strong sales of instant lottery tickets in the U.K., France, and Massachusetts were partially offset by a late start for Scientific Games' Italian contract for instant tickets.

Lorne Weil, Chairman and CEO of Scientific Games Corporation, said, "Lotteries continue to deliver outstanding results and we are one of the major beneficiaries. As we partner with lotteries to optimize game design, marketing and logistics, customers continue to demonstrate their approval through increased volumes of business. The Pennsylvania Lottery, a Scientific Games customer for both instant ticket and online products and services, experienced double digit growth for the second consecutive fiscal year, growing by more than 10% to sales of nearly $2.4 billion. This was only the second time in the history of the industry that a lottery with sales of at least $2 billion had recorded consecutive years of double digit growth."

"Lotteries are a $140 billion business worldwide. As they grow, new technologies are in tremendous demand -- technologies that we provide. Earlier this year, we introduced PlayCentral(TM) and C-Central(TM), revolutionary new vending solutions that can prevent stock outs, eliminate theft, reduce clerical time and expense and reduce prolonged delays in servicing. Recently, the Ontario Lottery and Gaming Corporation won the Canadian Project Excellence Award. OLGC was praised for completing an extraordinarily complex project on time and under budget, and in its remarks the lottery praised both Scientific Games and its Extrema-M(TM) terminal product."

The company noted the importance of new game introductions to enhance online lottery industry sales growth which has been lackluster in the last few years. Mr. Weil said, "Scientific Games has launched several new instant online games that have been very successful, including an instant online game called Match 6(TM). Several more games are scheduled for introduction in the next few quarters and we expect these to have a positive influence on online sales. In the meantime, we continue to sign very popular new licenses. Most recently we obtained the rights to World Poker Tour® and its Texas Hold'em® game, as well as rights to the Pac-Man® and Yahoo!® brands. We estimate that in 2004, our licensed instant ticket brands will represent at least 5% of overall domestic industry retail sales, about a five-fold increase in the last three years."

During the second quarter, Scientific Games announced it has been awarded several contracts: The instant lottery ticket contract for Wisconsin worth $5 million; a Cooperative Services contract extension from the Pennsylvania Lottery valued at $40 million and a $10 million online lottery contract extension with West Virginia. In addition, Puerto Rico announced that the company would be awarded the online lottery contract worth upwards of $67 million, although that award has been protested by a competitor. In early July it was announced that the Massachusetts Lottery had chosen Scientific Games to provide instant tickets for the next two years with three one-year options to extend -- a contract worth $20 - $25 million over the initial two-year term. The Massachusetts Lottery's instant lottery ticket sales are the second highest in the world after France, and the highest on a per capita basis.

Also in the second quarter, the company began shipping two new instant lottery games to Italy and is scheduled to add four more in the coming months. Mr. Weil said, "Sales are growing rapidly as the players discover the new games and we expand distribution every day. At the moment we have 10,000 retailers and expect to have 30,000 by the end of the year. We are very enthusiastic about this opportunity and look forward to updating you on our progress."

The holders of all of the outstanding preferred shares of the company have notified the company that they intend to convert their shares of the company's convertible preferred stock into common stock (representing approximately 27% of the common shares outstanding after the conversion) within the next few weeks. The company noted that the 23,832,390 shares of common stock issuable as a result of the conversion are already reflected in the company's reported diluted net income per share and similar information.

Guidance

Scientific Games is confirming that it expects to achieve revenues of at least $690 million to $720 million, and EBITDA of $195 million to $205 million, as previously announced. However, because the company expects to realize improvements in interest, depreciation and income tax expenses, it is raising the lower end of its earnings per diluted share guidance to $0.78 from $0.76 and keeping the upper end of the range the same at $0.83.

As a reminder, Scientific Games previously announced its intention to discontinue guidance beginning in 2005.