Key Highlights

-- Generated $46 million of Free Cash Flow in the second quarter of 2009 and $74 million year-to-date

-- Improved our liquidity and debt maturity profile by issuing $225 million of Senior Subordinated Notes due 2019, deferring a portion of the Global Draw earn-out payment, and repurchasing nearly $100 million of outstanding debt during the quarter

-- Achieved over $6 million of Profitability Improvement Program savings in the second quarter of 2009 and $11 million year-to-date; remain on target to achieve expected full-year savings of $15 - $20 million

-- Second quarter 2009 gross margin improved to 43% compared to 40% in the second quarter of 2008 and 39% in the first quarter of 2009

-- China Sports Lottery instant ticket retail sales grew 38% to $684 million in the second quarter of 2009 from $495 million in the second quarter of 2008

-- Amended existing agreement with Puerto Rico to include instant tickets, cooperative services and two optional two-year extensions

-- Awarded U.S. lottery sports wagering system contract with the Delaware Lottery and the primary instant ticket vendor contract by the Massachusetts Lottery

-- Global Draw grew its installed terminal base to 15,957 and was awarded new contracts in the United Kingdom and the Caribbean

-- Successfully converted the Pennsylvania Lottery's online terminal network to our new state-of-the-art IP-based communications network

-- Signed an agreement to accelerate the termination of our lottery systems contract in Mexico

Second Quarter 2009 Results

Second quarter 2009 revenue was $225.0 million compared to $306.0 million in the second quarter of 2008. The decline in year-over-year revenue was primarily attributable to $25.1 million of lower hardware and software sales in the Company's Lottery Systems and Diversified Gaming Groups, $15.5 million from the negative impact of foreign exchange rates, $12.7 million from the impact of operating under the revised terms of previously announced lottery contract awards, $11.6 million due to China instant tickets now being produced in China by our joint venture, a $9.2 million decline in sales in our licensed properties division, and a $6.2 million decline in phone card sales. These declines were partially offset by $4.6 million of higher sales in Italy, $4.6 million of constant currency growth in the Company's Global Draw and Games Media units, and a $2.5 million increase in instant ticket validation revenue in China.

Gross profit margin in the second quarter of 2009 was 43% compared to 40% in the second quarter of 2008 and 39% in the first quarter of 2009. The year-over-year increase in gross margin was primarily attributable to the successful launch of local instant ticket production in China, lower but more profitable Lottery Systems sales, and $4.2 million of savings related to the Company's previously announced Profitability Improvement Program.

In the second quarter of 2009, the Company's selling, general and administrative expenses declined to $39.1 million from $49.1 million in the second quarter of 2008. The year-over-year decline in selling, general and administrative expenses was primarily related to $2.6 million of savings related to the Company's Profitability Improvement Program, $2.5 million of lower incentive compensation expense, $3.3 million of non-recurring items reported in the second quarter of 2008, and $1.0 million from a favorable impact of foreign exchange rates, offset by $1.0 million of non-recurring items in the second quarter of 2009.

Adjusted EBITDA for the second quarter of 2009 was $80.6 million compared to $104.0 million in the second quarter of 2008. The year-over-year decline in adjusted EBITDA was primarily related to the above mentioned factors and lower equity in earnings of joint ventures, which is primarily the result of a negative impact of foreign exchange rates. Adjusted EBITDA margin in the second quarter of 2009 was 36%, compared to 34% in both the second quarter of 2008 and the first quarter of 2009.

Net income in the second quarter of 2009 was $20.3 million or $0.22 per diluted share, down from net income of $25.8 million or $0.27 per diluted share in the second quarter of 2008. In addition to the items mentioned above, the year-over-year decline in net income in the second quarter of 2009 was attributable to higher interest expense related to the May 2009 issuance of 9.25% Senior Subordinated Notes and the June 2008 debt refinancing, partially offset by lower depreciation expense and a lower effective tax rate. The decline in the effective tax rate in the second quarter of 2009 was primarily the result of the release of certain tax reserves related to tax settlements reached during the quarter. Non-GAAP adjusted net income for the second quarter of 2009 was $24.3 million or $0.26 per diluted share, compared to $37.8 million or $0.40 per diluted share in the second quarter of 2008.

Free cash flow, defined as net cash provided by operations less total capital expenditures, was $46.4 million in the second quarter of 2009, compared to $16.9 million in the second quarter of 2008. The year-over-year improvement in free cash flow was primarily related to lower working capital requirements and lower total capital expenditures.

For the six months ended June 30, 2009, revenue was $455.7 million as compared to $563.0 million for the six months ended June 30, 2008. Gross profit margin was flat in the first six months of 2009 as compared to the same period in 2008 at 41% as the year-over-year improvement in gross margin in the second quarter of 2009 was offset by lower year-over-year gross margin in the first quarter of 2009. Adjusted EBITDA in the first six months of 2009 declined to $155.9 million from $193.9 million in the first six months of 2008. Adjusted EBITDA margin was flat as compared to the same period in 2008 at 34%. Net loss for the six months ended June 30, 2009 was $4.8 million or $0.05 per share, compared to net income of $42.4 million or $0.45 per diluted share for the same period in 2008. Non-GAAP adjusted net income for the six months ended June 30, 2009 was $45.3 million or $0.48 per diluted share as compared to $66.3 million or $0.70 per diluted share for the six months ended June 30, 2008. Free cash flow for the first six months of 2009 was $74.4 million as compared to negative $8.7 million for the same period in 2008.

Joe Wright, Chief Executive Officer of the Company, commented, "At the beginning of the year, we announced that we were going to undertake a substantial effort to reduce costs and increase margin and free cash flow, and as you can see from our second quarter results we've done exactly that. Year-to-date, we have now achieved $11.3 million of savings related to the Profitability Improvement Program, and we believe we are on track to achieve our 2009 goal of $15 - $20 million. Furthermore, we continue to make good progress on our goal to save another $15 - $20 million in 2010 from our procurement initiatives that are in process. Also, we experienced both gross margin and EBITDA margin growth during the quarter. Lastly, in the first half of the year we have used our free cash flow to repurchase our debt, which we believe is an efficient use of our cash and now puts us in the position to pursue future growth opportunities."

Consorzio Loterie Nazionali Update

On July 1, 2009, the Italian government promulgated a decree, subject to legislative prerogatives, outlining terms for a tender process involving the Italian instant ticket concession. The decree also provides for potential extension of the existing contract to January 2012. Through our consortium in Italy, we are proud to have assisted our customer in growing instant ticket sales from approximately euro 200 million in 2003 to euro 9.2B in 2008. In preparing for the potential bid, the Company and the other consortium members have developed a memorandum of understanding to participate in a tender together.

Printed Products Group

In the second quarter of 2009, Printed Products Group revenue, which represented 51% of the Company's total revenue, was $114.9 million as compared to $155.3 million in the second quarter of 2008. The decline in revenue was primarily attributable to a decrease of $11.6 million from China instant tickets now being produced in China by our joint venture, a $9.2 million decline in revenue from our licensed properties division, $6.2 million from the impact of operating under the revised terms of previously announced contract awards, a $6.2 million decline in phone card sales, $4.7 million from the negative impact of foreign exchange rates, and $2.0 million of lower revenue from our new contract in the U.K. The decline was partially offset by a $4.6 million year-over-year increase in instant ticket sales to Italy.

Printed Products Group gross profit margin in the second quarter of 2009 was 41%, which is an improvement from 40% in the second quarter of 2008 and 39% in the first quarter of 2009. The year-over-year improvement in gross profit margin in the second quarter of 2009 from the second quarter of 2008 was due to savings of $3.2 million related to the Company's Profitability Improvement Program and reduced operating costs. The year-over-year improvement in gross margin was also partially attributable to the successful launch of our joint venture's instant ticket printing operations in China in December of 2008.

Printed Products Group adjusted EBITDA in the second quarter of 2009 was $37.3 million compared to $47.2 million in the second quarter of 2008. The year-over-year decline in adjusted EBITDA was primarily attributable to the above-mentioned factors, partially offset by $1.0 million of selling, general and administrative expense savings related to the Company's Profitability Improvement Program.

Wright commented, "Despite the weak U.S. retailing environment, second quarter domestic instant ticket retail sales were essentially flat year-over-year. This is quite an achievement and is a testament to the resiliency of the instant ticket business, which represents over half of our revenue and EBITDA. We are encouraged by the results to date and the proactive measures taken by several of our customers to grow revenue and the considerable success they are achieving in this challenging economic environment. We continue to believe the current business environment will create opportunities for us to work closely with our customers to increase their revenue and provide relief to their growing budget deficits."

On July 15, 2009, the Company amended its online lottery system and marketing contracts with Loteria Electronica de Puerto Rico to include the supply of instant tickets and cooperative services for the remainder of the lottery systems contract through 2012 with options to extend for two additional two-year periods. The Company will now handle the manufacturing and distribution of instant tickets throughout Puerto Rico, including shipping, warehousing, telemarketing, distribution, advising on game design and marketing issues, and provide support on retail network optimization and expansion.

Lottery Systems Group

In the second quarter of 2009, Lottery Systems Group revenue, which represented 26% of the Company's total revenue, was $59.1 million compared to $85.8 million in the second quarter of 2008. The decrease in revenue was primarily attributable to $18.9 million of lower hardware and software sales, $6.5 million from the impact of operating under the revised terms of previously announced contract awards, $2.6 million from the negative impact of foreign exchange rates, and $1.4 million from the loss of the South Carolina online contract. The decrease in revenue was partially offset by a $2.5 million increase in instant ticket validation revenue in China.

Lottery Systems Group gross profit margin was 49% in the second quarter of 2009 as compared to 39% in the second quarter of 2008 and 38% in the first quarter of 2009. The year-over-year increase in gross margin was primarily attributable to an increase in instant ticket validation revenue in China, improved margin from Lottery Systems sales revenue, and $0.7 million of savings related to the Profitability Improvement Program.

Lottery Systems Group adjusted EBITDA in the second quarter of 2009 was $21.9 million as compared to $25.7 million in the second quarter of 2008. The year-over-year decline in adjusted EBITDA was attributable to the above-mentioned factors, partially offset by $2.0 million of savings related to the Profitability Improvement Program.

"The introduction of the new 20 RMB instant ticket price point drove retail sales for the China Sports Lottery to record levels in the second quarter. We are very pleased that the China Sports Lottery has chosen to introduce the higher price point and remain enthusiastic about the prospects for this early stage lottery market and operation," commented Michael Chambrello, the Company's President and Chief Operating Officer.

On July 29, 2009, the Company announced that it had been awarded the contract to operate the Delaware State Lottery Sports Wagering System and Bookmaking Services, which includes a statewide network of lottery sports wagering terminals at the three racetracks (racinos), connected through a central processing system, with supporting sports bookmaking services. The system will provide communications, monitoring, sports book risk management, and accounting services for the lottery sports wagering operation. The Company was chosen with the highest point total in all categories in a competitive procurement process. The contract begins in the third quarter of this year, will have an initial term of six years, and will provide for four one-year extension options. Expected revenues to the Company depend on the form of wagers the Lottery offers, one of which has been challenged by the professional sports leagues and NCAA through a lawsuit filed on July 24, 2009.

On June 30, 2009, the Company and its Lottery Systems Group customer in Mexico entered into a series of agreements that accelerated the termination of their contract from October 1, 2009 to July 31, 2009 and transferred the system and responsibility for its operation to the customer. The customer agreed to purchase the Company's remaining lottery assets located in Mexico for $3.0 million plus a value added tax and the potential for additional compensation if net sales exceed a predetermined level. Separately, the Company entered into a four-year licensing agreement for its lottery system software that provides for revenue based on a percentage of the retail lottery sales generated by the customer above a defined minimum level.

Diversified Gaming Group

In the second quarter of 2009, Diversified Gaming Group revenue, which represented 23% of the Company's total revenue, was $51.0 million compared to $64.8 million in the second quarter of 2008. The decrease in revenue was primarily attributable to $8.1 million from the negative impact of foreign exchange rates, $6.2 million of lower terminal and content sales revenue, and a $2.9 million decline in handle in the Company's Racing and Venue Management divisions. The decrease in revenue was partially offset by constant currency growth in the Global Draw and Games Media units.

Diversified Gaming Group gross profit margin was 39% in the second quarter of 2009 compared to 43% in the second quarter of 2008 and 38% in the first quarter of 2009. The year-over-year decline in gross margin was primarily attributable to the second quarter of 2008 including a high margin content sale and a decline in racing handle.

Diversified Gaming Group adjusted EBITDA in the second quarter of 2009 was $14.9 million as compared to $23.1 million in the second quarter of 2008. The year-over-year decline in adjusted EBITDA was attributable to the above-mentioned factors.

In the second quarter of 2009, Global Draw's installed terminal base grew to 15,957 as the division successfully placed 502 new terminals during the quarter. The growth in Global Draw's terminal installed base was primarily attributable to incremental placements in the U.K. and international expansion in Mexico, Puerto Rico, Barbados, Malta, and Slovakia.

On July 3, 2009, Global Draw entered into an agreement with Ladbrokes to supply 296 server-based gaming terminals to 78 of Ladbrokes' betting shops across the U.K. for three years. This is the first time Global Draw and Ladbrokes have worked together to provide gaming machines to betting shop customers. In addition, on July 10, 2009, Global Draw entered into an agreement to extend its terminal footprint in William Hill betting shops.

Games Media's installed terminal base grew to 2,312 in the second quarter of 2009 at almost 1,000 pubs as the division successfully placed 475 new terminals during the quarter. The increase was a result of new contract awards and incremental growth on existing contracts. We believe the flexibility and speed of the Games Media system was demonstrated as a substantial portion of the installed terminal base was converted to higher stakes and prize limits upon the implementation of new stakes and prizes legislation on June 10, 2009.

Chambrello commented, "Global Draw and Games Media's additional terminal placements with the largest U.K. betting shop and pub operators, respectively, further demonstrates their superior performance and success in growing our customers' revenue. We believe their success in the U.K. can be replicated in other wide area gaming environments and anticipate further international expansion going forward."

Liquidity and Capital Resources

Free cash flow in the second quarter of 2009 was $46.4 million as compared to $16.9 million in the second quarter of 2008. The increase in free cash flow during the quarter was primarily the result of a $6.0 million improvement in net cash provided by operating activities, which was primarily the result of a $6.0 million increase in the Company's dividend from Consorzio Loterie Nazionali, the Company's instant ticket joint venture in Italy, lower working capital requirements, and a $20.2 million decline in total capital expenditures. During the second quarter of 2009, the Company's total capital expenditures were $33.7 million compared to $53.9 million in the second quarter of 2008. The decline in total capital expenditures was primarily the result of a $20.9 million decline in wagering systems expenditures.

In May 2009, the Company's subsidiary, Scientific Games International, Inc., completed an offering of $225.0 million in aggregate principal amount of 9.25% Senior Subordinated Notes due 2019 and received net proceeds of $212.0 million after the original issue discount and fees and expenses. The Company intends to use the net proceeds from this offering for general corporate purposes, including the repurchase, through open market purchases or otherwise, of a portion of our outstanding indebtedness.

During the second quarter of 2009, under the previously announced debt repurchase programs, the Company repurchased $84.4 million in aggregate principal amount of its 0.75% Convertible Senior Subordinated Debentures due 2024 (the "Convertible Debentures") and $12.9 million in aggregate principal amount of its 6.25% Senior Subordinated Notes due 2012 (the "2012 Notes"). As of June 30, 2009, the Company had net indebtedness of $1,134.2 million, compared to $1,098.8 million on December 31, 2008. Subsequent to the quarter, the Company repurchased $26.8 million in aggregate principal amount of its Convertible Debentures. On July 30, 2009, there was $115.6 million in aggregate principal amount of Convertible Debentures outstanding.