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Scientific Games Results Up for Q4 2001

The net loss before the non-cash preferred stock dividend and extraordinary items was $1.6 million or $ 0.04 per diluted share in the fourth quarter of 2001 compared to a net loss of $12.6 million or $0.32 per diluted share in the fourth quarter of 2000.

For the fiscal year 2001, revenues increased to $440.2 million compared to $267.7 million in 2000, and EBITDA grew to $105.1 million from $48.2 million in the prior year. The net loss before the non-cash preferred stock dividend and extraordinary items was $584,000 or $0.01 per diluted share in 2001 compared to a net loss of $22.2 million or $0.59 per diluted share in the year 2000.

The 2001 results also showed improvement compared to pro forma results reflecting the combination of Scientific Games and Autotote as if the acquisition had occurred on January 1, 2000. Actual revenues and EBITDA for the combined companies were $440.2 million and $105.1 million, respectively, in 2001 compared to pro forma combined revenues and EBITDA of $424.7 million and $74.2 million, respectively, for 2000.

Pro forma net income before non-cash preferred stock dividends (amounting to $1.8 million and $7.1 million for the fourth quarter and year, respectively) and amortization of goodwill and other acquisition-related intangible assets (amounting to $3.7 million and $14.1 million for the fourth quarter and year, respectively) was $2.1 million or $0.03 per diluted share for the fourth quarter of 2001 and $13.6 million or $0.20 per diluted share for the 2001 year.

``The delivery of these results was directly related to the success we have had winning new business, introducing new technology and entering new markets, while at the same time streamlining operations to deliver the best products and services as efficiently as possible,'' said Lorne Weil, Chairman and CEO of Scientific Games Corporation.

``During the course of 2001 and early 2002, we achieved a number of important milestones including:

- Most critically, the successful integration of Scientific Games and Autotote Corporation enabling both substantial cost reduction and increased marketplace effectiveness.

- Winning of new instant ticket and/or Cooperative Service contracts in Italy, Norway, Ohio and South Carolina, as well as contract renewals or extensions in six US states.

- Award of on-line lottery equipment or service contracts in South Carolina, Jamaica, Ontario and Atlantic Canada together with the simultaneous start-up of the Maine and Iowa lotteries in July 2001. As previously reported, we are implementing the first virtual private network for the on-line lottery industry in South Carolina.

- The commercial launch of our business-to-business account wagering platform "Trackplay" that has thus far been adopted by a number of leading operators in the US and abroad, with several more anticipated to do so in the coming months.

- The re-signing of several pari-mutuel customers including Woodbine Entertainment and the Atlantic City Casinos, as well as the award of the Turf Paradise totalisator contract.

- Successful restructuring of our pari-mutuel operations in Germany, France and the Netherlands resulting in significant profit improvements by year-end.

- In January we moved from the Amex to the NASDAQ exchange. We believe this will give us exposure to an investor base that is both broader and better able to appreciate the technology underpinnings of our business.

``Early in 2001 we indicated that we expected revenue growth to be led by the on-line lottery segment due to the start up of the Maine and Iowa lotteries, and a full year of operation in New Hampshire and Vermont, and that this should be augmented by solid growth in the instant ticket Cooperative Services area. We also said that we expected a notable increase in profitability due to several factors including cost improvements in instant ticket operations and the new technology being deployed in our pari-mutuel communications network. These dynamics played out pretty much as planned, allowing us to perform nicely in line with our expectations. Indeed, our core gaming operations performed significantly ahead of plan, more than offsetting the shortfall in the phone card business that had been discussed in our third quarter of 2001 release.

``Going forward, we expect that revenues will benefit from a full year's operation in Iowa, Maine and Jamaica, the addition of the on-line and instant lotteries in South Carolina and Italy, continued strong organic growth in existing Cooperative Service accounts, lottery equipment sales in Ontario and Atlantic Canada, and the continued positive impact of the growth of account wagering in our pari-mutuel business. In addition, we are in the proposal phase of several potential new lottery contracts, scheduled to be awarded in the next few months. We also expect to compete aggressively for several additional on-line and instant lottery contracts that we believe will go out for bid in the next couple of quarters in the US and abroad.

``At the same time, we can point to several areas of increasing profitability. Instant ticket manufacturing performance showed steady improvement throughout 2001 and this should carry over into 2002. We will also benefit from the consolidation of two plants in Leeds, England that was completed in the fourth quarter of 2001. We believe that the margin erosion that characterized our phone card business throughout 2001 has run its course and, as mentioned above, the profitability of our European pari-mutuel operations has shown solid improvement.

``In view of these developments, together with the fact that we have signed several new contracts since our third quarter report, we are raising our guidance for revenue and profit for 2002. We are estimating revenues in the range of $500 million to $525 million and EBITDA between $120 million and $125 million. Adding to this the effect of reductions in goodwill amortization and continuing low interest rates, we anticipate meaningful positive earnings per share for 2002. In addition, during 2002 we expect to generate increased cash flow from operations which, when coupled with lower capital expenditures, should allow us to reduce our outstanding debt.

``A final element of our plans going forward relates to potential acquisitions. At the present time we are analyzing a number of opportunities that would fall squarely into either the lottery or racing sides of our business. Any acquisition candidate would have to meet all the following criteria: it can be bought using equity at a multiple of EBITDA considerably lower than our own at present, thereby achieving significant earnings accretion together with balance sheet improvement; the business has technology and marketplace overlap with our present businesses and offers good potential for synergy in revenue and cost structure; and the business model combines elements of revenue participation, service, and multiyear recurring revenue contracts. While there can be no assurance at this point that we will complete any such transactions in the coming year, we are sanguine regarding the opportunities that may be available.''

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