Scientific Games Announces Fourth Quarter and Full Year 2012 Results

NEW YORK, March 11, 2013

Summary Financial Results
($ in millions, except per share amounts)
		Three Months Ended December 31,				Twelve Months Ended December 31, ARIVA.DE Börsen-Geflüster Kurse Light & Wonder Inc 89,26 $ -3,05% WMS Ind -   0,00%
		2012		2011		2012		2011
Revenue		$249.2		$239.1		$940.6		$878.7
Operating (loss) income		(6.3)		19.2		38.2		83.8
Attributable EBITDA		90.6		80.3		343.3		327.5
Net loss		(24.7)		(8.5)		(62.6)		(12.6)
Net loss per share		(0.29)		(0.09)		(0.70)		(0.14)
Total capital expenditures		(31.3)		(23.5)		(111.3)		(91.9)
Free cash flow		17.5		(5.1)		45.4		79.2

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

Recent Business Highlights

• In January 2013, Scientific Games entered into an agreement to acquire WMS Industries Inc. (NYSE: WMS) ("WMS"), a leading supplier of gaming machines and interactive gaming systems and content; the acquisition would combine two leading companies in the lottery and gaming industries to create a company with the ability to offer an extensive range of products and services to public and private sector lottery and gaming customers around the world
• In December 2012, a consortium in which Scientific Games owns a 16.5% equity interest, was provisionally awarded a 12-year concession for the exclusive rights to the production, operation and management of instant ticket lotteries in Greece; Scientific Games expects to serve as the exclusive supplier of instant tickets over the term of the concession
• Scientific Games' U.S. instant ticket and lottery systems customers' retail sales increased 5.1% and 10.9%, respectively, in the fourth quarter of 2012 compared to the prior-year period, based on third-party data
• Global Draw's U.K. total gross win and gross win per terminal per day increased approximately 4% and 1%, respectively, in the fourth quarter of 2012 versus the prior-year period, excluding gross win attributable to the William Hill contract in the prior-year period
• The Company executed the following contracts:
  • Five-year contract extension with the Connecticut Lottery to continue providing lottery systems and services until May 2018
  • Two-year contract with the Iowa Lottery to supply instant tickets through December 2014
  • Agreement with the Maryland Lottery to provide Properties Plus^® internet-based player loyalty rewards program through June 2016
• Scientific Games repurchased 2,735,233 of its common shares during the fourth quarter and a total of 9,157,139 shares during 2012

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

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

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

Business Update

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

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

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

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

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

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

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

We have made progress in our interactive business as well, with the Maryland Lottery signing on to become our eighth Properties Plus customer. We see additional opportunities in the pipeline and believe the Properties Plus program will help lead the way for states to begin providing internet-based offerings.

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

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

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

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

Fourth Quarter 2012 Financial Results

Revenue

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

Operating Income

• Decrease in operating income primarily reflects $33.8 million increase in depreciation and amortization, partially offset by a $6.8 million impact of a higher and more profitable revenue mix, $1.7 million decrease in selling, general and administrative and $0.2 million reduction in employee termination and restructuring
• Higher depreciation and amortization principally reflects:
  • $24.0 million of accelerated depreciation of gaming terminals and software
  • $5.8 million of asset impairment charges on Lottery Systems contracts
• Reduction in selling, general and administrative primarily due to:
  • $3.6 million decrease in accrual related to Asia-Pacific business incentive compensation plan
  • $1.1 million reduction in professional fees
  • Decreases partially offset by $1.4 million increase in accounts receivable reserves, $0.8 million increased severance expense, $0.8 million of incremental overhead from acquisition of Provoloto and $0.7 million increased compensation expense primarily related to growth initiatives

Net Income    

• Decline in net income reflected the decrease in operating income and was partially offset by the following:
  • $4.7 million increase in earnings from equity investments, primarily reflecting higher results from RCN and Italy, partially offset by lower results from Sportech
  • $2.3 million increase in other income principally due to decline in foreign exchange transaction expense
  • $1.7 million decrease in income tax expense

Attributable EBITDA

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

Printed Products

Revenue

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